How to Invest in Warren Buffett's Stocks

Save

There are many ways to create a portfolio that either matches or closely approximates Warren Buffett's stock holdings.

Berkshire Hathaway B

The billionaire investor's holding company, Berkshire Hathaway, is his primary investment vehicle. In mid-2015 it held more than $500 billion in total assets, with investments in more than 40 companies. Berkshire Hathaway issues two classes of shares. The A class has never been split; as the share value rose, Buffett did not did divide the shares at all to keep the share price affordable. By mid-2015, each BRK-A share was worth more than $200,000 -- not a realistic investment vehicle for most investors.

Berkshire Hathaway B shares, however, are affordable to the typical investor. On July 14, 2015, BRK-B closed at $141.12. Over the past year, the share price has fluctuated from about $123 to $153 per share -- well within a typical investor's reach. The usual stock market trading unit is 100 shares or multiples thereof. During the past year, you could have acquired 100 shares of BRK-B for at most about $1,530 -- again, well within many stock investors' reach.

Berkshire Hathaway B has the same holdings as Berkshire Hathaway A and is an efficient way of matching the parent holding company's investments. Transaction costs are affordable. Because some of Berkshire Hathaway's investments are in privately held companies, it is the only way of buying an exact match.

Mutual Fund Approximations

You can also buy shares of several mutual funds that more or less closely approximate Buffett's holdings. Mutual fund companies are stock management companies that group investments in many different publicly traded companies and repackage them as that particular management company's shares.

Warning

  • Since some of Buffett's holdings are in privately held companies -- companies that do not have shares for sale to the public -- no mutual fund company can match Berkshire Hathaway's holdings exactly.

These companies try to approximate Buffett's holdings in two ways. First, they simply buy the same publicly traded companies that Berkshire Hathaway holds. These copycat holdings will seldom be exact matches, because Berkshire Hathaway, like all publicly traded companies, has an obligation to make public its investment holdings only once every three months. But since Buffett doesn't trade stocks frequently -- his approach is to buy and hold for the long term -- these copycat holdings will come close.

The other way certain mutual fund companies try to match Buffett's results is by emulating Buffett's methods. Buffett is a classic "value investor" -- a follower of the father of value investing, Benjamin Graham. Graham believed that investors regularly overvalued some stocks and undervalued others, and an investor can approximate his approach by buying companies with price-to-earnings ratios that are significantly lower than the P/Es of other stocks, especially companies in the same markets. In essence, these mutual fund companies emulating Buffett use the same value-oriented approach. Some large funds with management that emulates Buffett's investing methods are Ariel Focus (ARFFX), Sequoia Fund (SEQUX), BBH Core Select (BBTEX) and Weitz Partners III Opportunity Fund (WPOPX).

A Word of Caution

Investors who understand Buffett's extraordinary success sometimes carry their attempts to invest like Buffett too far. While Buffett's long-term investment returns have been good, they haven't been equally good in all markets. During the recent recession, Buffett's returns exceeded the standard investment benchmark, the S&P 500, by several points each year. Since then, however, Berkshire Hathaway has actually lagged behind that market index, earning in 2014 an investment return of 8.5 percent -- about half the S&P 500's 16 percent.

Promoted By Zergnet

Comments

You May Also Like

Related Searches

M
Is DIY in your DNA? Become part of our maker community.
Submit Your Work!