Learning from the success of other investors is a terrific way to improve portfolio returns, and few come close to achieving Warren Buffett’s track record. The investment billionaire has averaged just under 20% in annualised gains since 1965.
That may not seem like much compared to the performance of some AI stocks right now. But systematically doubling the stock market’s average for almost 60 years is an exceptional feat.
At a 20% annualised rate, even a modest monthly investment can transform into a mountain of wealth over time. In fact, investing just £500 a month at this rate for 30 years translates into a pension pot worth over £11m.
So how can investors strive to achieve such gains?
Aiming for 20% returns
Hitting double-digit returns each year is far easier said than done. There have been countless attempts to replicate Buffett’s success. Yet the vast majority of investors have failed to come even close.
Buffett’s strategy involves a lot of patience. Businesses don’t magically grow overnight despite what some share price explosions might suggest. It can take years to execute a strategy and so many things can go wrong. It’s an investor’s job to analyse both opportunities and risk before buying shares.
While there are thousands of publicly-traded companies to choose from, only a handful will deliver Buffett-like returns. That’s why the vast majority of Berkshire Hathaway’s wealth is concentrated in just five businesses.
So what makes a company a potential winner? There are many factors at play, including qualitative and quantitative characteristics, Buffett likes to judge. However, a recurring theme among his investments is the presence of a moat.
By having a collection of sustainable, hard-to-replicate, competitive advantages, businesses can more easily outmanoeuvre rivals. And in the long run, that can make an enormous difference in capturing market share, resulting in more value creation for shareholders.
A Buffett-style stock to buy?
Looking across my own portfolio, there are several companies I believe are capable of delivering Buffett-like returns in the long run. And one particularly promising choice, thanks to its cheap-looking valuation, is Alpha Group International (LSE:ALPH).
The firm’s a specialist enterprise within the financial sector. In oversimplified terms, it helps other businesses hedge their foreign currency risk, as well as providing an alternative banking platform to manage all their transactions.
Its technology is proving to be a powerful solution to common problems that traditional banking hasn’t been able to solve effectively. So much so that adoption has been accelerating. And when backed by an expanding moat, revenue and operating profits have been growing at an impressive double-digit pace.
This performance has translated into an average return on investment of 22% a year since 2019. And that’s before accounting for the extra gains delivered by dividends. Of course, historical performance doesn’t guarantee these Buffett-like returns will repeat in the future.
Traditional banking has been slow to respond to fintech innovations. But they won’t sit idle forever. As Alpha continues to take market share, a reaction may eventually be provoked. And since traditional banks have far more financial resources at their disposal, the company will be put to the test.
While this competitive threat can’t be ignored, Alpha has managed to defy expectations so far. That’s why it’s one of my top five largest portfolio positions.
