Why imitating Warren Buffett isn’t the Best Idea

Warren Buffett, the third wealthiest person on the planet as of today is considered the most successful investor in the world.

However, while investing worked for Buffet, it doesn’t mean it will work for you as well. That is, imitating Warren Buffett is not the key to riches.

Why?

Simply because Buffett has had many factors contributing to his success. Some of these factors are:

He has an above-average IQ and investing intuition. He began selling stuff and saving cash while he was still in school.

He bought his first stock at the age of 11.

He had Benjamin Graham as his finance teacher. Don’t know Benjamin Graham? Well, he is known as the ‘father of value investing’ around the globe.

Try not to ‘Invest like an Expert”

Well, most people tend to believe that replicating an expert, like Mr. Buffett, will turn them into one. With this article, I want to chuck that idea from your head. So, what exactly do I mean when I say an expert? By an expert, I mean the best investors in the world – like Warren Buffett.

People like him are the ones who have actually understood how the economy works. They manage to beat the market with their extreme investing acumen.

People like him are literally the *unicorns* of the financial world.

Why you should duplicate the ‘Experts’

1. Investing or Speculating is a Zero-Sum Game

In layman terms, a zero-sum game is a mathematical situation in which one party’s gain is always equated by the other party’s loss.

So, the stock market and speculating is a zero-sum game.

Why?

Since when you purchase a stock at a particular value, another person is selling it at that equivalent cost. In the event that you were right to buy, it would mean that they were wrong to sell (and vice versa).

In this game of finance, for you to win i.e. perform above average, someone else will have to perform worse.

If the only people constantly performing above than average are successful investors like Warren Buffett, then that means someone is performing worse.

Who is that someone? YOU.

Therefore, you need to understand that it’s a game. You don’t need to perform ‘good, you need to perform ‘better’.

2. All ‘Unicorns’ contribute in a Unique Way

The key takeaway from their investing strategies shouldn’t be their investment strategies, rather the point that they invest in a ‘unique’ way.

If you end up copying their investing strategy, you’re basically missing the whole point.

If you are someone who believes that a book will guide you through the investing market, you’re wrong.

Why?

For the simple reason that if everyone follows the same trick and ‘wins’, who will lose? Revisit the previous point once.

3. They have been into Investing for a Looong Time

All the ‘unicorns’ we are talking about have been into investing for a long time. For instance, Warren Buffett bought his first share at the age of 11!

It’s more of an obsession, passion than hard work.

Obviously, they work hard. But why? Because they are obsessed. Obsessed with winning.

Winning at this financial game is not easy. There are thousands of people competing and aspiring to win. To become that one individual who wins and beats the market indeed requires experience and hard work.

4. They have Identified Advantages 

What is something these unicorns do that makes them stand apart in the market? How do they ALWAYS end up making a ‘winning’ decision?

Well, they only tend to buy a share when they are 100% sure of any of these 3 things:

  1. Advantage of Information: They have some data/information about the share/company which others don’t.
  2. Advantage of Analytical Skills: They can analyze and predict the market in a way in which others can’t.
  3. Advantage of Decision-Making: They don’t let emotions take over their logical decision-making process.

It is only when the people who have made it big are sure of possessing either one of these that they proceed with buying/selling/trading.

Advantage of information provides a more concrete chance of success than the advantage of analytical skills or the advantage of decision-making.

In fact, the advantage of decision-making is the vaguest out of the three.

Hence, big time investors prefer having either the advantage of information or the advantage of analytical skills.

5. They are probably just Lucky (?)

Some people believe that you cannot expect to make money by copying unicorns because they are lucky.

While this may not be entirely true, it isn’t entirely false as well.

What is luck?

Opportunities.

To get exposure to shares and stocks and to have money to be able to buy a share at 11 is ‘luck’ for Warren Buffett.

Had this purchase not worked out in his favor, there is a chance that he might have not purchased a share again.

But guess what? His initial purchases worked for him. Not all of them must have worked, but a majority of them definitely did.

Therefore, there is no use in copying experts’ strategies since you can anyway not ‘copy’ their ‘luck’.

Things you can do to Win the Financial Game

So now that we have ruled out ‘copying’ big-time investors in order to up our financial game, let’s talk about what we can actually do to up our financial game.

While obviously these points won’t ensure that you win every time at the zero-sum game, they would ensure that you become better than more than 90% people competing.

When the market crashes, buy more

The best time to buy shares is during market crashes.

Why?

Let’s take a look at the concepts of support and resistance levels.

These two levels are boundaries within which a stock’s price movement occurs.

Support level is the bottom most boundary whereas resistance level is the top most boundary.

These two levels suggest that a stock’s price is not likely to fall below its support level and similarly, it’s not likely to go beyond its resistance level.

When the price of a security reaches its support level, that is the bottom most level, it is considered an ideal time to buy that security. Similarly, if price goes beyond even the support level, there could not be a better time for purchasing that security.              

  • Pay your Taxes, don’t pay extra

No, I am not asking you to evade taxes.

All I am asking you is to pay the bill, but don’t leave a tip.

Smartly handle your finances and investment portfolio in order to become tax proficient.

  • Diversify

With investing comes diversification.

Diversify your portfolio. Don’t put all your eggs in one basket.

Diversifying will reduce the overall risk you are exposed to when investing.

  • Invest for Long-Term

Learn to control your mind.

Do not indulge in short-term selling and buying.

Think long-term if you want to make it big.

No Comment Yet

Leave a Reply

Your email address will not be published. Required fields are marked *