Berkshire Hathaway owns shares of National-Oilwell Varco, Inc. (NYSE:NOV), as well as a whole host of “Buffett” stocks. Berkshire’s stock is up nearly 40% in less than a year, second quarter earnings were up 46%, and clearly the shares are the simplest way to “invest like Buffett.”
Another safe way to invest like Buffett may surprise you–it’s actually through an exchange traded fund (ETF).
While most ETF’s don’t offer the upside of individual stock picks, that’s not the case for the Market Vectors Wide Moat ETF. This ETF does much more than offer diversification–it’s a collection of high-moat businesses that are picked in the Buffett way. The fund’s top holdings include Berkshire businesses like National Oilwell Varco, as well as non-Berkshire picks like eBay.
Whether its the market share of National Oilwell Varco or the “network effect” of eBay, the fund is looking for businesses with competitive advantages and a “sticky” ability to retain customers. If we really want to pick stocks like Buffett, and pick companies that attract and keep customers easily, why not do it through this ETF and get some diversification to boot?
Individual stocks may offer tremendous upside, but we can’t ignore risk. I’d recommend keeping your individual stock picks to 20% (or less) of your portfolio, and to keep a small and focused (Buffet-like) group of them. No one can outsmart sellers every time, so don’t even try to.
The facts are that professional money managers, after fees, lose to the market by about 9% on average. So by following this simple approach, at least 80% of your portfolio will typically beat the professionals!
And this fund also offers much more upside than the typical “market matching” index fund. It’s already up 39% this year, yet it still offers safety as it doesn’t hold more than 6% in any one stock. I feel that, due to the funds investment philosophy (actively seeking out high moat businesses), it’s a great and safer way to “invest like Buffett.”
Be like Buffett, think for yourself
The truth is, the books don’t tell us to buy Berkshire directly or an ETF because it’s too simple. It’s not sexy, and there’s no prestige in it.
The approach I’ve outlined can work for you, with one big caveat: you have to want to invest like Buffett, not be him. While this approach may not sell many books, it should make you money.
Having a portfolio that consists of Market Vectors Wide Moat ETF, shares of Berkshire Hathaway, and five (or less) other “high moat” individual stock picks, is one example of a safe and very smart way to invest like Buffett.
The article Want to Invest Like Warren Buffett? It’s Easier Than You Think. originally appeared on Fool.com and is written by Adem Tahiri.
Adem Tahiri owns shares of National Oilwell Varco. The Motley Fool recommends Berkshire Hathaway and National Oilwell Varco. The Motley Fool owns shares of Berkshire Hathaway and National Oilwell Varco. Adem is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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