Type Warren Buffett into a search engine and you'll be bombarded with results. Just under 26 million results actually. It's easy to understand why.
A while back I sat through a marketing presentation. The presentation highlighted data which showed that by putting a photo of Arnold Schwarzenegger on the front of a sports magazine, you could almost double sales overnight.
I don't know the figures, but I assume the same is true for Buffett.
Just like Schwarzenegger was one of the best male actors/sports personalities of the last century, Buffett is the greatest investor of the last century and others want to replicate his style.
But the harsh reality is you are not Warren Buffett, and you never will be. Even by following his trades and investments, it's highly unlikely that you will ever be able to achieve returns similar to the Oracle of Omaha. Actually, you'll come nowhere close.
A number of financial institutions recently compiled some data on what sort of return the average investor was able to achieve. Over a twenty year period to 2013, the average investor has only produced a total return of 2.5% per annum. The only financial instrument that performed worse than the average investor over the period was the Japanese stock market. Some of the instruments that performed better than the average investor over the past 20 years include: cash (3% p.a.), bonds (3% – 8% p.a.), hedge funds (8% p.a.), REITS (10% p.a.) and all emerging markets (6% – 10% p.a.).
As many investors try to replicate Buffett's style by actively trading (and over-trading as a result), they are hurting their returns. Buffett himself has stated that the best investment for most investors is the index fund. But whatever you do, don't fall into the Buffett trap.
The Buffett trap
It is easy to read up on Buffett and try to replicate his style. There's so much content out there on Buffett and Berkshire it must be easy right?
Wrong.
A month or so ago I covered some of Buffett's earlier investments. These early investments, while deep-value in nature required shareholder activism to unlock value.
Buffett has never really been a strict buy-and-hold investor. In fact, the majority of his investments have involved activism, or some kind of interference on his part. This is something the average investor will never be able to achieve.
And it's not just interference with complacent management teams that's helped Buffett…
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