Here's how you can replicate Warren Buffett's investment performance
Warren Buffett is one of the worlds wealthiest people and is, without a doubt, the most celebrated investor alive today.
Every investor wants to be able to replicate his success, but doing so is extremely difficult.
That being said, it is not wholly impossible. You may not be able to turn yourself into one of the wealthiest people in the world, but by following a few simple Buffett rules, you can dramatically increase your wealth and investment performance.
Follow some key rules
The key to building wealth is time and a lack of losses.
Ever since he began investing, Buffett has understood that losing money should be avoided at all costs, even if that means accepting lower returns. Low returns in the short term are more than compensated for by long term investment performance as gains compound over time.
His investment mantra is simple; invest in businesses that can achieve a high return on capital every year. As the company generates higher returns, shareholders should benefit to the same degree as management compounds wealth. This is how Buffett can grow his wealth by 20% or more per year because he invests in companies that are doing the same thing.
As well as investing in businesses that are generating higher than average returns for investors, Buffett also looks to buy these companies at attractive valuations. By investing at low multiples, he can produce an even higher return on his investment as the stock moves back to its equilibrium value.
Looking for the best buys
Finding businesses that can compound your wealth at 20% or more per annum is hard, but not impossible.
Unfortunately, today the number of businesses high-quality trading at attractive valuations is around zero so it may be better to bide your time and wait for better opportunities. That being said, there is one company out there that he will enable you to benefit from Buffett-like returns without having to do any extra work.
Why make more work for yourself?
Warren Buffett's holding company, Berkshire Hathaway, is probably one of the best investments there is.
The company is more than just one business. As well as the wholly-owned insurance businesses, the group also owns a large percentage in Coca-Cola, American Express and Wells Fargo, one of the largest banks in the United States. Then there's the $100bn of cash on the balance sheet. Put simply, if you're looking for a well-diversified stock portfolio, managed by one of most significant investors of all time, Berkshire ticks all the boxes. A $100bn cash balance also limits the potential downside.
There are plenty of other fund managers out there trying to replicate Buffett's performance but most of them come nowhere close to matching his returns, and all charge a management fee. Berkshire charges no management fee and is managed by the man himself.
For UK investors, the added benefit of investing in Berkshire is international exposure. If Brexit turns out to be a disaster, an investment in Berkshire will help maintain the calm.
Follow these three key rules
Most people won't be able to build a Buffett-like fortune in their lives. However, by following just a few simple rules, you should have no problem growing your wealth and hitting your long term savings targets, whatever they may be.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended American Express. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.