Warren Buffett is the most successful investor of all time with a net worth of $87 billion. What are some reasons why you can never invest like him?
Wait, I heard you want to be like Warren Buffett when it comes to investing.
There’s nothing wrong with it, to be sure. In reality, it’s the most logical course of action.
As we all know, Warren Buffett is the best and most admired investor of all time. He is well-known not just for making himself a multi-billionaire, but also for providing huge returns to his investors.
Warren Buffett, dubbed the “Oracle of Omaha,” is the CEO, chairman, and biggest shareholder of Berkshire Hathaway.
Many people, including myself, wanted to take apart his accomplishment. Trying to figure out and duplicate his magic recipe.
“If you want to be the greatest, you must first learn from the best,” as the adage goes.
Do a simple Google search for “invest like Warren Buffett” and you’ll receive 7.9 million results as of this writing!
However, the more I study, read, and dive down the rabbit hole, the more certain I am that I will never be able to invest like Warren Buffett. At least, that’s what I think is true for little investors like you and me.
The reality is that following his every move may not always be beneficial.
You can’t emulate Warren Buffett’s success by merely purchasing Berkshire Hathaway’s stocks or adopting his investment strategy.
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Here are the reasons why I believe you will never be able to invest like Warren Buffett.
Everyone aspires to be like Warren Buffett when it comes to investing.
However, many people miss the reality that Warren Buffett does not purchase equities like the rest of us.
Many individuals believe that “buying cheap and selling high” is the secret to successful investing. That’s one side of the coin, at least.
- We have no idea where the lows are.
- We don’t have enough cash flow to profit from the market cycle.
- We’re all frightened crap even when we’re at our lowest! It’s very difficult to go against the grain.
Most importantly, Warren Buffett is not going to run out and purchase Amazon stock simply because it fell 5%, 10%, or 20% yesterday!
Warren Buffett isn’t your typical investor.
He is a very astute negotiator.
He knows how to obtain it at a cheaper price and with better terms.
In his investment, he can obtain special treatment and agreements that will enable him to earn a lot more money.
So, what precisely does a bargain imply?
Goldman Sachs’ stock was plummeting in 2008, right in the middle of the financial crisis.
The stock is now trading at $115 per share.
That is the price at which an ordinary investor can buy the shares.
Warren Buffett, on the other hand, is always one step ahead of the game. He made a phone call and made them an offer they couldn’t refuse.
Here’s how it works:
- Warren Buffett made a $5 billion investment. He received 50 million preferred shares at a price of $100 in return. That’s a $15 save on each share!
- He received a ten percent assured dividend.
- He also got warrants to purchase $5 billion of GS stock at a set price of $115 per share, regardless of the company’s price.
In fewer than three years, Goldman Sachs repurchased the stock, paying Buffett a total of $5.649 billion.
- The preferred shares have a $5 billion principal.
- Dividends of $649 million (including one-time repayment incentive and accrued dividends)
The tale didn’t end there…
Warren Buffett exercised the warrants later that year, paying $115 per share for 43 million shares. A share was $190 at the time. He retained 13.1 million GS shares and sold the rest for a profit of $2 billion!
In all, Warren Buffett profited $4 billion from this transaction.
There are many more offers similar to this.
Buffett also struck a deal with General Electric, purchasing $6 billion in stock and receiving a 10% special dividend. On the GE transaction, he earned 1.2 billion dollars.
That’s the sort of arrangement that neither you nor I would ever have in a million years.
This leads me to the second point I’d want to make:
In comparison to a private individual investor, becoming an investor for a big corporation offers an undeniable benefit.
Small investors can only purchase in the hundreds of shares, whereas Warren Buffett buys in the millions.
When he buys, he earns money; when you and I sell, we make money.
He has access to knowledge and a vast network, allowing him to strike amazing bargains that most of us can only imagine.
He has the ability to transfer large sums of money quickly, even quicker than a bank.
Needless to say, as a powerful leader, he has the ability to influence the market just by talking about them.
While it is feasible to adopt Buffet’s long-term and value investing principles, we must keep in mind that we can only apply them to a limited extent.
Taxes are something that everyone despises. Our greatest-ever investor, on the other hand, always understands how to take advantage of the situation.
His assistant, in fact, pays more taxes than he does!
She was able to make money as an employee.
The super-rich, such as Warren Buffett, pay lower taxes than many ordinary working people.
Because he won’t have to pay any taxes as long as he doesn’t sell the $80 billion worth of Berkshire Hathaway shares he holds.
“I don’t need a tax cut,” he previously remarked. I want to pay a higher tax rate.”
But, in reality, he would go to any length to avoid paying taxes!
He said that he would not be giving any money to his children. But he doesn’t mention that he set up a $3 billion charity foundation for each of his children.
They may then pay themselves millions of dollars a year from the foundation.
He donates a large portion of his wealth to the Bill and Melinda Gates Foundation as well as his children’s organizations.
You are correct. There has to be a solid explanation for this.
By following these steps, he will be able to avoid paying a 40% death tax while donating 100% tax-free money to his children’s charity.
He also wants Congress to increase the upper-middle class’s minimum tax rate to 30%. Meanwhile, his $80 billion is tax-free.
So, what does this have to do with investing?
Remember, Buffett will go to any length to lower his taxable income and increase Berkshire Hathaway’s profits.
He may also invest in projects that aren’t accessible to other investors.
Warren Buffett, for example, spent $3 billion in P&G stock in return for P&G’s Duracell battery company.
Berkshire may avoid paying any tax on the stock gain by using P&G shares as cash throughout the transaction.
Normally, after-tax funds are used to purchase stocks, but not for him. With pre-tax money, Buffett can make transactions.
That alone would result in a savings of at least 35%, or $1.05 billion!
Buffett isn’t a value investor in the traditional sense. He’s a businessman with a high level of sophistication.
It’s crucial to understand how he became wealthy by starting his own company, exploiting every loophole in the book to keep his taxable income to a bare minimum, diverting Congress’ attention away from raising taxes on the middle class, and remaining exempt from the rule while others become desperate.
First and foremost, he prefers to use a flip phone over a smartphone.
He doesn’t have a computer on his desk, which is fun fact number two. He does, however, have a World Book Encyclopaedia on his bookshelf.
Fun fact number three: He does not use email. Jeff Raikes of Microsoft was the recipient of his first and only email.
Warren Buffett avoided investing in Internet businesses during the dot-com boom. He acknowledges that he made errors by failing to purchase Google and Amazon stock. He has so far refrained from investing in large internet firms such as Facebook, Netflix, and Amazon.
He’s even publicly chastised Bitcoin, telling CNBC lately that…
…in terms of cryptocurrencies, I can virtually guarantee that they will fail miserably.
It may be a good idea to avoid investing in things you don’t fully comprehend. However, it also means that you may lose out on some significant gains over time.
So, should you take Warren Buffett’s Bitcoin advice?
The response is often a different question: would you accept advise from someone who has no idea what he’s talking about?
Buffett despises Bitcoin and technology firms on a deeper level because they threaten his near-monopoly position and threaten his competitive edge in a variety of ways.
Bitcoin has the potential to reclaim financial power from the government, banks, and monopolizing middlemen.
The Macintosh brought computers to the masses;
Google made information more accessible to everyone.
eBay accomplished the same thing with e-commerce.
Cryptocurrency is democratizing money in the same manner.
Buffett’s investing approach is clearly not the only one that works, despite Berkshire Hathaway’s enormous success.
Don’t let people dissuade you from learning about Bitcoin, cryptocurrencies, and the Future, and even investing in them!
In the first quarter of 2016, Warren Buffett spent slightly over $1 billion on 9.8 million Apple shares. That share is now valued at $1.4 billion.
He would have $8.7 billion if he had accepted the money and purchased Bitcoin instead.
Anthony Pompliano, the founder of Morgan Creek
The bad news is that none of us have Warren Buffett’s ability to invest.
The good news is that we don’t have to be like him to be successful today.
Begin your education here and also here.
What are your thoughts? Leave a comment below with your views.
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Frequently Asked Questions
Can you invest like Warren Buffett?
Is Warren Buffett really a good investor?
Warren Buffett is one of the most successful investors in the world. He has a net worth of over $76 billion and is one of the richest people on Earth.
Why shouldnt you buy Berkshire Hathaway stock?
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