To Make Money, You have to do Better than Warren

It is almost blasphemous to even think that you can do better than Warren Buffet, perhaps the best investor of all times. But if your portfolios are down and you wish you had Warren's skills, you would not be much better off. Right up to mid September, the year to date performance of the DOW and Berkshire Hathaway (BRK.B) was nearly identical, down by about -16%. Then the word came that big banks and brokers were in trouble and BRK zoomed higher while DOW tanked. As of the end of last week, DOW is down over -30% while Berkshire has recouped some and is down only -17%. Of course, if you were lucky enough to hold some bonds and cash (which most of my clients do), the performance was nearly the same. By the way, this happens most of the time; when markets drop people park their money into Warren's care.

But the point is, even Warren would not have spared your loss, at least up to this point. If the rout continues, it is quite likely Warren will keep getting money from losing investors and will keep outperforming. Note however that the reversal in Berkshire shares is also swift, i.e. if for some strange reason there is a market rally, people will ditch Warren and pile into the DOW.

So to make money in this market you will have to outdo Warren. One way is to get out to of the market altogether and wait for the wind to blow over. A better way is to do what he is doing, i.e. buy preferred shares in the same or similar companies like Goldman Sachs, US Bancorp and GE. In Canada, you could buy pref's from the banks like CIBC, Royal, BNS, TD and National.

What are the odds of you beating Warren? Not great, given that he is best. The best strategy is to follow his words not his stock, i.e. buy when others are selling like he is doing NOW.