Can I invest better than Warren Buffett – by learning from his mistakes?

Warren Buffett at a Berkshire Hathaway AGM

Billionaire investor Warren Buffett has a track record that is hard to match, let alone beat. But I think I might be able to do that – simply by following Buffett’s own advice!

The Warren Buffett method

To try and match the results Buffett has achieved in his investing, I would use the same principles he does. That does not mean I will necessarily do as well, of course. But hopefully, over time, I could find success using the Buffett investment method in the same way the Sage of Omaha has.

So what exactly is the Warren Buffett method? This famous investor has used a variety of techniques at different times. But most of his career has been informed by three investing principles he learnt from his mentor Benjamin Graham.

The first of these is to think about shares as little parts of big companies, not just bits of paper. Taking that approach means that I do not buy shares simply hoping to exploit short-term movements in share prices. Instead I ask myself whether a particular company has an attractive business model that could help it be profitable for decades to come.

Buffett’s second principle is not to get distracted by market noise. Many investors panic when they see the price of a share they own tumble. Buffett, however, is investing in what he sees as excellent businesses and taking a long-term approach. The stock market offers him a chance to buy or sell shares at a particular price each day. But he is not obliged to do so. He basically tunes out market noise and focuses on his long-term investment themes, regardless of what the short-term price movement may be.

The third principle is to invest with a margin of safety. He is not trying to find merely good companies. He is looking to invest in companies so great that, even if they do not live up to his expectations completely, he can still hopefully do well.

Avoiding mistakes of omission

So far, so good. But what I have described above is simply using the Warren Buffett approach to investing. So, how could I try to beat his performance?

Buffett’s partner in running Berkshire Hathaway, Charlie Munger, said this to shareholders: “The mistakes that have been most extreme in Berkshire’s history are mistakes of omission. They don’t show up in our figures. They show up in opportunity costs.

Buffett has echoed this theme repeatedly, kicking himself for missing a certain type of opportunity. That is one that not only looks great – but also that he had the knowledge necessary to judge it. The Oracle of Omaha is not worried about missing great investments outside his circle of competence. Instead, his concern is that he has missed great opportunities he had the ability to identify and assess, but still failed to act on.

If I can learn from Buffett and try to minimise my own such “mistakes of omission” as he calls them, hopefully I might become an even better investor than him, over time!

The post Can I invest better than Warren Buffett – by learning from his mistakes? appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.