Every so often, I find myself going back through transcripts and videos of Berkshire Hathaway's BRK.A BRK.B past shareholder meetings.
I think this is a relatively important thing to do because it helps remind me of nuggets of information issued by the Oracle of Omaha over the years. These insights may not necessarily be headline-grabbing, but they are nonetheless significant.
The only way to remember them and to keep them at the front of our minds is to revisit these issues and make sure we understand them constantly. After all, all the human mind can only keep so much information available at any one point.
Copying other investors
For example, at the 2009 Berkshire annual meeting, Warren Buffett (Trades, Portfolio) and his right-hand man, Charlie Munger (Trades, Portfolio), told their audience that it was perfectly acceptable to copy high-profile investors' ideas because this would help streamline the investment process.
Responding to a shareholder who asked him what he thought about investors who copied Berkshire's equity positions, Buffett responded:
"In terms of the first part of the question about buying the securities we buy, plenty of people do that. And some of them — but they — incidentally, they're not buying it with free float that's available from insurance. So if they have $58 billion that they can get interest-free, they will be in the same position we are in buying those securities. But they a — on the other hand, they have some tax advantages we don't have. So I don't quarrel with people who do that. We have to publicize to some extent what we own. Some things they wouldn't be able to buy because we make direct purchases. They wouldn't be able to buy into the businesses we own. But they might very well do better piggybacking us in some way. And they're certainly free to do it."
Munger then added, "generally, I think it is quite smart to do what you are talking about."
He went on to add that following investors "you regard as very skilled" and "carefully" examining everything they are buying is a "good idea."
Indeed, it appears as if this was the approach Buffett himself used in the early days when he was trying to identify deep value securities. As he said in 2009:
"Yeah, I used — when I was 21 years old, I had to mail away to the SEC in those days — and you had these crummy copies about a week later and paid a lot per page to get them — but I used to get the semi-annual reports of Graham-Newman Corp before I went to work there. And I would look at every security that was listed there. And I got some of my ideas that way. So it's a — there's nothing wrong with that."
Overall, it would appear that Buffett and Munger do not believe there's anything wrong with copying highly successful investors' ideas.
However, there is one caveat here. Munger said it could be sensible to follow the ideas of intelligent investors after "examining" everything they do. This suggests he is advocating a reasoned and disciplined approach to copying other investors' portfolio positions.
Just buying a stock without really understanding why another investor likes it can be a disastrous investment strategy if something goes wrong. In other words, copying positions should not be used as a shortcut for individual research and financial analysis.
Looking at other investors' holdings should be a starting point for further research, used to help swing the odds of success in your favor. After all, these investors have already conducted one layer of due diligence on the opportunity.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Warren Buffett: Opportunity Cost in Times of Uncertainty
- An Alternate View on Why Berskhire Hathaway Is Buying Snowflake
- Why Warren Buffett Still Owns Struggling Businesses
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