The portfolio of Warren Buffet owned Berkshire Hathaway has always been public. Why then we don't have millions of Warren Buffets around us? Copying a portfolio just doesn't work. Read why...
Background
When I was in college, I used to study very hard. I used to sit in the college library after the classes got over, for a detailed understanding of the topics covered during the day. I often referred multiple books by different authors on the same topic, and prepare my own notes that were a true representation of the topic.
Those notes were like a bible for me, since they were good enough to be referred at any later point of time, or before the examinations. It made everything so simple. I need not refer anything else - no reference books, professor views etc, and just my notes.
There were many students in my batch who used to come to me, a fortnight before the exams, and ask my notes to be photocopied. I used to give it to them without any hesitation, though some of my well meaning close friends wanted me not to do so. My friends believed that those guys, who are not even my friends, are enjoying a free lunch. they believed that I did all the hard work, and that should stay only with me. I never understood how it would truly help them in life. It actually never did. It never does. Copying never helps.
Berkshire Hathaway's Portfolio
Do you want to copy it and get rich? Well, you can try that, but you are quite unlikely to succeed. Well, you may point out that its not just his portfolio but compounding as well, that has been a contributor to Buffet's wealth, and I would agree. But even if you discount compounding, this idea of copying rarely works.
The idea of copying successful portfolios
I am sure that the idea of copying successful portfolios must have crossed your mind at some stage of your investing journey. And it is not just about Berkshire Hathaway's Portfolio. There are so many freedom seekers who have similar queries. One of my freedom seekers on our ELITE Program recently asked me this query over email:
How about I follow the best performing mutual funds in each category, carefully read their stock lists and start following their investment as per the weight assigned and create my own portfolio on that basis? Is that recommended?
Interesting question, isn't it? But only as long as you do not get deeper into it.
Four reasons why copying rarely works
Summary
Regards
Manoj Arora
Official Website
I liked your thoughts Manoj Sir . I need some clarifications :
ReplyDeleteI make sound Stupid or Ignorant. Pls excuse me in advance .
In point 1 : how can one invest only for Liquidity? Point 2 : risk profile of fund manager. We need to see that also ? Inpoint 4: why anybody will choose for no return till 15 yrs?
All people want to invest basically to get good Returns in stock or any investment .
Dear Snehal,
DeleteIf returns were the only criteria for investment, then all of us should have 100% of our investments in stocks. Even if we find one good stock, that's enough to invest all our money, right? But no, it doesn't work that way. Because returns is not the only criteria why we invest. If I have an event coming up in my family for which I need, say, 20 lacs in the next 2 years (say my daughter's marriage), then I would not invest my current savings for returns. Rather, I would invest them for safety and liquidity even if I get less, or zero returns.
Anyways, all questions are good, and you will find this and all other questions answered in Foops!
Take care, and keep asking...
Regards
Manoj
Manoj sir, the essence of this blog is avoid copying in any field and the same is not restricted to stock market only. Your thought process is very helpful for us. Please share on regular basis.
ReplyDeleteThank you my friend
DeleteDear Sir,
ReplyDeleteLike others even this article of yours is a great insight. This is really helpful for me as I even had asked you about modeling successful portfolio. The 'context of the investor' is something an eye-opener for me. Thank you so much dear Mentor for all of your efforts.
Dear Ankur,
DeleteJust like all other times, thank you for being so appreciative and understanding. Happy that it helped you.
Regards
Manoj