Stop fooling yourself. You are not Warren Buffett.

July 5, 2011 | Comments (19)

I hate to crush anyone’s dreams but sometimes realism is simply a better catalyst for accomplishment than groundless euphoria. Let’s face it. You probably will never be like Warren Buffett. Unless, that is, you can read like a maniac. Want to try to be Warren Buffett? When you wake up tomorrow morning grab a copy of Forbes and read it from front to back, followed by Wall Street Journal, Financial Times, New York Times, USA Today, Omaha World-Herald, and the American Banker.


Guest Post by

Value Folio

I hate to crush anyone’s dreams but sometimes realism is simply a better catalyst for accomplishment than groundless euphoria. Let’s face it. You probably will never be like Warren Buffett. Unless, that is, you can read like a maniac.

Want to try to be Warren Buffett? When you wake up tomorrow morning grab a copy of Forbes and read it from front to back, followed by Wall Street Journal, Financial Times, New York Times, USA Today, Omaha World-Herald, and the American Banker (Crippen, 2007).

Crippen sums up the obvious: “Needless to say, he’s a fast reader.”

Still think you can be Warren Buffett? I didn’t think so. This daily reading list doesn’t even include the stack of SEC filings and annual reports he reads from front to back.

So let’s wake up and embrace our inferiority. Now a question stands right in front of us. If we can’t be Warren Buffett, can we still earn returns like Warren Buffett?

From 1965 to 2010 (45 years), Buffett’s Berkshire Hathaway shares have increased per-share book value at an average annual rate of 20.2% while the S&P 500 (with dividends included) has increased only 9.4% per year (2010, Berkshire Hathaway Annual Report).

This isn’t even including Buffett’s market crushing partnership returns before Berkshire Hathaway. His performance has been phenomenal and is simply unmatched. So the question remains: Can we earn market-crushing returns like Warren Buffett without being Warren Buffett?

Four Hour Investing

Perfection is achieved, not when there is nothing more to add, but when there is nothing left to take away -Antoine de Saint-Exuper

If Timothy Ferris, author of The Four Hour Work Week, were a value investor, I think he might believe achieving Buffet-like returns is possible.

For those of you who are Timothy Ferris fans (or haters) you know about his minimum effective dose (MED) philosophy. Ferris has dedicated the majority of his working life to putting forth the minimum effort for maximum results. Avid readers of his books, blog, and forum will conclude that Ferris is definitely on to something. In fact, I’ve been experiencing MED results first hand for the past month.

I’ve been implementing a compromised version of his Geek-to-Freak workout to put on some muscle on this awfully skinny body of mine the last 4 weeks. With only 2-3 workouts a week I’ve gained 7 1/2 pounds of muscle in 28 days–not bad for following the plan even with some compromise.

How does Ferris get more results out of less work? By working smart and not hard. Armed with hours of experimentation, trial and error, and the latest findings, Ferris is able to build on the work of others to accomplish just as much or more than others with less work.

This imposes a question for us value investors: Can we take the loads of investing information and plethora of investing services and tools and use them to our advantage, saving us time and labor? Can we earn Buffett returns by utilizing, disseminating, and interpreting the information that is provided to us by those who have already done most of the hard work for us?

Introducing: MED Investing

The modernization of the world and increased competition from a global economy is probably putting demands on your time. And, unfortunately, time doesn’t care about your problems. Time is unforgiving. You better learn to make the most of your time or you just might get left behind. As investors, therefore, we face a dilemma. We want to earn satisfactory returns on our hard earned money, yet what’s the point if it eats up all of our time? I think that it is time we consider MED (minimum effective dose) Investing. Is it possible?

I don’t have any hard facts for you about why (or even if) MED investing works, but, really, we have no choice but to give it a shot (unless you are Warren Buffett). So what weapons would the MED investor need in his or her arsenal?

  1. Time management skills. If you’ve never read it, pick up a copy of Timothy Ferris’ The Four Hour Work Week. Though everything in the book might not apply to you, you’ll probably find some nuggets that will make your life much easier. My personal favorite? Baching.

  2. Old School Value spreadsheets. Jae Jun explains the benefit of his spreadsheets with accuracy: “How would you like a full time stock analyst, working for you?” With OSV spreadsheets you can get the ratios and valuation methods you care about, all calculated for you in just a matter of seconds. OSV spreadsheets, combined with a basic understanding of value investing, will make investing much easier and save you an incredible amount of time. They are, without a doubt, the best valuation spreadsheets available.

  3. Bloomberg Businessweek Magazine. Bloomberg Businessweek is published weekly. Its content is entertaining and, more importantly, will expand your horizons and business acumen, keeping you on the learning curve. The best way to better understand businesses is to read about them. Bloomberg Businessweek will keep you business savvy. Its cotent is completely relevant for investors. Good investors are voracious readers. You can’t go wrong here.

  4. Motley Fool. If you haven’t joined this Foolish group of investors, I don’t know what’s stopping you. The Motley Fool Stock Advisor service pays for itself. Every month you’ll receive two new, thoroughly researched stock recommendations for your consideration, in addition to one of the best advisor newsletters ever to be published. The Motley Fool community is large and active. Motley Fool helps investors keep their heads on straight. If anyone focuses on the business as opposed to the stock, it’s Motley Fool. They have a reputation of buying great businesses and rarely selling. It’s a strategy that’s worked extremely well for them as they’ve crushed the market since inception.

  5. Morningstar. Morningstar offers extensive financial information on stocks. It has brought all the information you need for an investment together in a user-friendly format, helping investors make better investment decisions. There is plenty of information available for free at Morningstar, including its star rating system of many stocks which can sometimes help give you confirmation in your investment choices. But their Premium membership is worth the money. This is another service that pays for itself. With the premium membership you have 10 years of financial data at your fingertips and Morningstar’s reports with Buffett-like analysis. Morningstar’s analysts take a fundamental approach and have done all of the hard work for you. These reports will not only help you get a better picture of a potential investment, but the analysts write in an educational manner, helping you improve your stock analysis skills. Plus, Morningstar Stock Investor Picks Have Beaten the S&P 500 during the last 8 years. If you don’t want to fork out the cash for a premium account, the free one is still fantastic.

Today I’m sitting in the Green Bean (the Starbucks of the desert) with my M-4 sitting at my side. As I look around, it looks like there are about 25 people with at least 4 different types of weapons in this coffee shop. All of us carry live ammo. We don’t know each other, but we trust each other. We trust each other with these weapons because we know that we all have had to train and become proficient with these weapons in order to carry them around like this. We’ve been schooled in accountability and watched those who dare do the wrong thing with their weapon experience serious punishment under the Uniform Code of Military Justice. The same goes with these investment tools. It is one thing to know they exist, but it is another to become proficient at using them.

I encourage you to take inventory of your arsenal. What do you have available at your fingertips? Are you effectively honing your investment weapons? When that opportunity comes you need to be ready to pull the trigger. On the other hand, you need to be well trained so you don’t commit fratricide.

Just as technology has made communication easier than ever, technology has presented investors with an opportunity to earn better returns with less labor.

So to answer our question, you don’t have to be Warren Buffett to earn Buffett-like returns. You only need to be the master of the information and tools at your fingertips.

Disseminate, filter, and utilize them wisely.

What weapons are in your arsenal?

About Daniel Sparks


Daniel Sparks is a passionate value investor with a specific interest in behavioral finance and its implications on investing. He is the author and founder of Value Folio, a value investing blog.

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  • http://www.wealthsavant.com WealthSavant

    An easy way to know if you are with the value investors or against is to make the moves that feel bad. If the walls are caving in and the financial apocalyse is upon us; when CNBC anchors have the look of horror on their faces and your mom is calling wanting you to put everything they have in gold bullion… its time to buy.

  • joe_t

    Reading bloomberg magazine and buying spreadsheets will not enable anyone to get market-crushing returns. the premise is just silly. if you’re not willing to put the work in actually digging deep through SEC filings you should just save yourself the trouble and index.

    i kinda see this post as spam. we get it, you wanna sell your spreadsheet.

  • http://www.valuefolio Daniel Sparks

    joe t

    Honestly I think OSV spreadsheets need little convincing. If you don’t think they will save you time, that seems kind of silly. They calculate up to 10 years of financial data. For example, consider how helpful it is when you are analyzing a small company and you are automatically provided with 10 years of owner earnings calculations.

    And I doubt many individuals do the same sort of research as Warren Buffett, with the same level intensity. And that is the point here. Utilize other resources to help you be a better investor. It makes perfect sense.

  • Jason

    Nice article.

    My advice to add is not to diversify so much. Keep a portfolio that fits into the hours you can spend on each week. Simplicity!

  • http://www.valuefolio Daniel Sparks

    WealthSavant

    Haha, that is very true. I’d like to say that exercising contrarian temperament is one of the greatest tools an investor has at his disposal.

  • http://www.valuefolio.com Daniel Sparks

    Jason,

    I agree. I think people try to diversify for the sake of diversification too often. If you are buying businesses and not stocks, and you are in it for the long haul (like an investor should be), then diversification isn’t really an issue.

  • joe_t

    Daniel-

    I agree the spreadsheets are good. They’re useful. DCF is hugely overrated IMO but the financial statements and all are a good starting point on there.

    The point remains that just a spreadsheet and some daily reading is not enough to beat the market. It’s just not.

  • http://www.valuefolio.com Daniel Sparks

    joe_t

    I totally see where you are coming from. The point of the article isn’t to say that you just need to read a magazine and have a spreadsheet to earn market crushing returns. It’s that investors should utilize these tools to make their pursuit of market crushing returns easier than it would be without them. Just as we use the internet today to make communication easier than it used to be.

    I agree. It takes time to develop understanding of accounting concepts. And many times you just need to pull out the 8K, 10Q, or the 10K. But just as a CEO wisely chooses his executives to make the business more effective, an investor can wisely choose his investing tools and learn to use them better to become a better investor.

  • will

    @ joe_t..

    “Guest Post by Value Folio”

    im sure jae loves selling his spreadsheets (as they are extremely helpful). however, he didn’t spam anyone in this article (front page probably works). as was written in the header of the article…this was a guest post…

  • adam

    Jae, as a long time reader and big fan of your blog, I am sorry to be blunt, but this guest post was seriously disappointing. I am assuming that this was an oversight on your part and hope you can use some discretion next time you allow other guest posts, rather than allow anyone who happens to mention OSV spreadsheets ( which as an user, I can verify, is excellent) to post on your blog.

    I doubt if this blogger has been a value investor for long. In fact, I doubt that even if someone follows every recommendation above and the MED routine, he/she would be able to match Buffett’s performance. I agree with joe_t, the false equivalence he/she draws between buffett’s performance and reading investing magazines/newspapers and annual reports or disseminating/sharing information ( which hedge-funds on wall street do all the time) clearly shows his inexperience. Businessweek is to buffet-like-performance as Big Macs are to one’s health. Maybe someday when this blogger shows me his/her audited 10-yr performance, I would listen to what he has to say.

  • Daniel

    adam,

    I am the guest author. I’m sorry I disappointed you.

    I’m not sure about you, but I have a full-time job. I don’t read 4-6 newspapers and magazines, plus a stack of financial statements every day like Warren Buffett. I also need to use OSV spreadsheets to help me save time. Unlike Buffett, I can’t go without a calculator.

    When I say Buffett-like returns, I’m referring to returns that beat the market. The premise is simple. If you mirrored Morningstar StockInvestor for the last 10 years did you know you would have beat the market 4 times over? And Morningstar StockInvestor rarely makes portfolio changes, so the small investor can easily follow along.

    I never said not to give up on SEC filings, I said to utilize resources like these well. And as I asked the readers. What resources do you use? These are simply ideas. These low-cost resources can serve investors well. Just like you use OSV spreadsheets. Sounds like you are implementing MED Investing yourself. You are trying to get the most output with the least effort. If you were not trying, then you should delete your OSV spreadsheet and try and be exactly like Buffett. Also, make sure you read 4-6 newspapers a day from front to back and a stack of SEC filings and financial reports.

  • http://www.oldschoolvalue.com Jae Jun

    Hey everyone.
    I think it’s important to look at the message Daniel is trying to provide, which is we need to be more efficient.
    We have so much information these days that it’s easy to get distracted or lost. I believe that is what Daniel is trying to convey.

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  • http://dailyimprovisations.com Laura

    I thoroughly enjoyed this article. I’m newer than some to the stock market, and definitely less analytical than most investors that I read articles from. It is often frustrating to swim through the articles, struggling for something to grasp ahold of that I can understand and use. I know so many people that are leery of the stock market for this very reason. As my husband and I try to pass on stock market basics to our kids, the attitude exemplified in this article is necessary or it is just too overwhelming.

  • http://www.valuefolio.com Daniel Sparks

    Laura

    I’m glad you enjoyed the article. I firmly believe that it isn’t the analytical abilities that make superior investors superior. It is the “human” side of investing that makes the difference. If it were the technical skills that could make investors superior, then practice and intelligence would be all that is needed. But psychology plays a huge role in investing and sometimes taking a less analytical role can give investors a psychological advantage because of their detachment from the stock.

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