Comparing profit or losses with friends can be both good and bad. Sometimes it can make you feel frustrated, especially if you underperformed or missed out on a good buy. Other times it can highlight what is going well or badly, or even what can be copied from someone else! When it comes to the legendary investor Warren Buffett, I feel I can copy a lot from him to help boost my overall return.
Strong long-term performance
When I refer to Buffett being up 50% in the past five years, I’m referring to his investment vehicle, his company Berkshire Hathaway. This company encompasses all of his investments in other stocks, so the value of the share price should closely mirror the performance of the stocks that are owned.
Berkshire Hathaway shares have performed well since the start of 2018. Over the past year, the share price is flat. Yet considering that stock markets globally performed poorly in 2022, this isn’t that bad a result!
A mixed portfolio
Even though Buffett has owned some stocks for decades, he has also benefitted from adding stocks within the past few years that have helped to supplement the performance of his staples. This diversification measure is the first point that I’ve been copying him on for several years.
In his case, he has stuck with companies such as Coca-Cola and American Express for several decades. These kind of steady shares provide him with consistent returns given their stable business operations. Sure, Coca-Cola is never going to be a hot growth stock, but it has been a reliable performer even during past recessions.
At the same time, I try and add some exciting stocks that are hot at the moment. This should help to provide me with the means to outperform a generic benchmark, such as the FTSE 100. Buffett does a similar thing, something I note from his purchase of Activision Blizzard shares.
Trying to copy Warren Buffett in hunting value
For the next five years, I’m going to try and copy Buffett in his moves to scoop up undervalued companies. A good example of this was in Q3 last year when filings showed he took a $4.1bn stake in Taiwan Semiconductors. When I reviewed the purchase at the time, the stock was down around 45% over the previous year.
Clearly, Buffett saw it as a good value buy, based on his calculations. It also came at a time when the stock market was in a gloomy place. Yet despite the fall, his long-term view was (and still is) that the company is valuable.
I haven’t bought Taiwan Semiconductor shares specifically, but I’m trying to follow this approach at the moment. It isn’t easy because there are lots of stocks that are down from 2022, but not all are good value buys. In some cases, the fall is justified. I’m focusing on picking sectors (eg, healthcare, property and finance) that I believe in, and then filtering for specific stocks in those areas.
My aim is to check back in five years time and hopefully match Buffett in his returns.
