How to Invest Like Buffett

167454627

Most people don’t tap dance their way to work. But Warren Buffett does. And I suppose if I had a commute longer than from my bedroom to the kitchen table, I might too. That’s because both Buffett and I love our jobs. I recently started reading a book about Buffett called, Tap Dancing Your Way to Work. It’s an odd title, and the contents surprised me. The book is a collection of essays and profiles about Warren, plus a few articles that Warren wrote as well. These were all featured over the decades in Fortune magazine. Most of the articles are by staff writer, Carol Loomis. Many of them are dense, technical investing articles, too, especially the legendary essay on inflation written by Buffett. Still, if you want to understand one of the greatest success stories of the 20thcentury, you have to read everything you can about the mythical moneyman.

I’ve also found tremendous value in reading Buffett’s annual letter to Berkshire-Hathway shareholders. I recommend you start in the mid-80’s and read at least a couple from each decade. They will give you the best insight into Buffett’s investing mindset. What he does is not really that complicated. It just takes a lot of work that the majority of investors are unwilling to do.

But the most practically helpful book that I’ve read about Buffett is a little-known piece of work.

The book is called, The Winning Investment Habits of Warren Buffet and George Soros, by Mark Tier. Let’s ignore the Soros content of the book, and please don’t send me any hate mail because I’ve recommended something that talks about Soros! Now let me explain why this book was so helpful.

As you might expect, I’m conservative with my money. I don’t own a car, a fancy house, or a vacation house, I don’t buy fancy clothes, and I don’t have any expensive hobbies. Aside from buying fancy dog food for ol’ Bally the Dog – and traveling a lot for work – I don’t spend a lot of money.

In fact, earlier this month at dinner in Miami with my friend Bedros Keuilian, we calculated that my lifestyle burn rate (something that Mark Ford talks about here) is less than $40,000 per year. Perhaps even $30,000. That takes away a lot of stress in my life.

My investments are conservative, with one exception. I invest a LOT of money in what some folks might say are extremely risky ventures. But they are not risky to me. Let me explain my philosophy and how it became crystal clear what I should do with my money. It all started with a quote from this book that forever changed my attitude towards investing.

You see, for years I had read financial newsletter after financial newsletter, hearing about the riches available, and I’d gone so far as to order Ben Graham’s Intelligent Investor, among a dozen other investing books (that almost all sit unopened on my bookshelf). As I read Mark Tier’s book, I had an epiphany. It became crystal clear to me that I should never do my own stock picking. That would be a fool’s errand.

The big a-ha moment came when Buffett described his “Circle of Competence” that guides his investment strategy. The great news is that we all have our own Circle of Competence that can guide us to making smart financial decisions. All you have to do is ask yourself 3 questions.

1. What are you interested in?
2. What do you know now?
3. What would you like to know about and are willing to learn?

First, I answered those questions about stocks.

Am I interested in them? – Kind of.
Do I know anything about them now? – Not a bit.
Am I willing to learn about them? – In theory, yes. But as my bookshelf tells us, in practice, no. Besides, if I were to do my own investing, I’d be the guy that bought at the top and sold at the bottom. I’d get fleeced.

But, when I answer those questions another way, I quickly identified where I should invest my money.

1. What are you interested in? – Information publishing.
2. What do you know now? – Quite a bit.
3. What would you like to know about and are willing to learn? – I live for this stuff.

My passion for information publishing (online and offline) lined up with Buffet’s obsession with stocks. In fact, one of Buffett’s 23 investment priorities outline in the book was, “Live and breath investing 24 hours a day”.

A few other ones on the list I liked are:
– Love what you do, not what you own
– It’s not about the money
– Create unique investment philosophy
– Focus on after-tax ROI
– Invest in what you UNDERSTAND (emphasis mine)
– Refuse investments outside criteria
– Passionately avoid risk

To Buffett, investing is NOT a risk, because through study and analysis he has become an expert in every area that he invests. He lives and breathes it, just as I do with information publishing. And so that is what I’ve decided to invest in…information publishing businesses. As soon as I realized that I began investing a lot of my energy and money into information-publishing companies that I knew are going to be winners. I turned one investment of $150,000 into $250,000 in just 13 months.

I hope that gives you a new perspective on investing and on the methods of Warren Buffett. It should give you something to think about in terms of where to put your energy, too. Look to your Circle of Competence for the biggest opportunities in your life.

[Ed Note: Craig Ballantyne is the editor of Early to Rise (Join him on Facebook here) and the author of Financial Independence Monthly, a complete blueprint to helping you take control of your financial future with a web-based business that you can operate from anywhere in the world – including a coffee shop, your kitchen table, or anywhere around the world where there is Internet access. Discover how you can achieve the American Dream and your financial independence here. You’ve never seen anything like this before.]
  •  
  •  
  •  
  •  
  •  
  •