Can You Beat Warren Buffett ?
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Is it possible to Mimic Warren Buffett's Investment Returns?
Every investment manager (or even retail investors like you and me) admires Warren Buffett’s investment returns. But is it possible to copy Warren Buffett's investment strategy? While most of us desire Buffett’s results and try to mimic his investment approach by reading books written about him and attending courses that try to emulate his strategies. Can we really mimic his investment returns?
The answer is of course NO.
We Live in Different Generation
Because other than having “superb & extraordinary “ skills in picking undervalue stocks, obviously, Warren Buffett (BRK) is living in high “market return” generation as compare to us.
Below the chart will show you how the diminishing market returns on investment since the early 70s to recent years and how it will affect our total investment returns as well.
If you are just like me, have invested in the market for around 20 years, you may notice that the overall market returns had gone down from 10.3% ( from year 70s to 2000), to the most recent 20 years ( 1999-2019) of around 4.6%.
DIMINISHING RETURNS: WHY INVESTORS MAY NEED TO LOWER THEIR EXPECTATIONS < From McKinsey & Company>
“Buoyed by exceptional economic and business conditions, returns on US and Western European equities and bonds during the past 30 years were considerably higher than the long-run trend. Some of these conditions are weakening or even reversing. In this report, we attempt to quantify the impact on future investment returns.
Our analysis suggests that over the next 20 years, total returns including dividends and capital appreciation could be considerably lower than they were in the past three decades. This would have important repercussions for investors and other stakeholders, many of whom have grown used to these high returns.”
How about STI?
Look at how volatile the market was since 1987 for the past 32 years, almost every few years you will see some sort of correction in the market and a 10-20% correction is quite common nowadays. If you have invested in STI since 1987, well, your returns were merely 3% (before dividend ), of course including dividend the returns may increase to more than 6%, which is quite decent actually, if we take into the consideration of the compounding effect.
But if we compare it with the early 70s to 2000 on Warren’s generation of achieving market return of more than 10.3% before dividend, of course, the overall result will be much higher and astonishing in the long run with compounding effect.
Obviously, not only the time in the market but the different period of time will give you a different set of R.O.I. Having a strategy of buying more during the crisis will definitely help to improve your return and sometimes we need a little bit of luck to achieve that. Also, always keeping some war-chest ready to take advantage of market irrationality from time to time.
I would say in our generation, time in the market and timing the market are equally important in order to achieve better R.O.I, of course, the important of buying into good and sound fundamental companies.
Rather-than trying to beat Warren Buffett which is near to impossible, we could still learn from him on the market’s characteristic and psychology as well as controlling our own emotional in investing like fears/ greed and how to be patient in searching for “undervalue stocks” with a margin of safety.
Ultimately, one will need to take note that in chasing for higher returns to outperform market or someone, we will need to be realistic in our investment target or R.O.I. Setting an unrealistic investment target may lead us to take unnecessary RISK and could be very destructive in our journey to achieve Financial Independence.
Quote Of The Day "
“Part of the secret sauce of Berkshire Hathaway is that when there is nothing to do, Warren is very good at doing nothing.” Charlie Munger