Remember, You Are Not Buffett

As a financial writer, it is often challenging to distinguish between fiction and reality. To put it another way; I often think I am a more accomplished investor than I am.

The problem is, writing about investing, famous investors and the life and times of Warren Buffett (Trades, Portfolio) all day, I end up in a false sense of reality that needs to be controlled. This is not to say that I live in a dream world, but it does mean that I have to remind myself I am not Warren Buffett (Trades, Portfolio), I do not have a significant permanent capital base behind me, and I do not have a unique insight into all of the companies I invest in.

For example, when Warren Buffett (Trades, Portfolio) started out in his career, on several occasions, he was able to unlock value from an investment by buying a significant stake in the business and then pushing management for changes. Companies such as Dempster Mill and Sanborn Map. These opportunities are not available to the average investor. You can buy stock in a deeply undervalued company, but whether or not it will be marked higher is never certain.

What's more, and this is probably more important, I do not have the time to spend as much time researching securities as Buffett. This is a problem I believe holds back most non-professional investors. The best way to reduce risk is research, but most non-professional investors and even wealth managers don't have the time required to conduct rigorous due diligence on any opportunity.

“Most people who try [investing] don’t do well at it. But the trouble is that if even 90 percent are no good, everyone looks around and says, ‘I’m the 10 percent.’” -- Charlie Munger (Trades, Portfolio)

I know this is one of my limitations so I have tried to build an investment style around my life that works for me and does not require me to spend days analyzing companies. With a limit on time, I could end up rushing the process, which will ultimately lead to losses or a silly decision on my part (selling out too early or late for example).

Build a strategy that works for you

Building an investment strategy is a crucial part of being a successful investor, but the approach will only be useful if it is tailored to your strengths and weaknesses. I believe that it is more important to acknowledge your shortcomings and build these into the strategy rather than trying to do too much with too little.

Put simply, it's important to realize your limitations, and while I'm trying to remember that I'm not Warren Buffett (Trades, Portfolio), I'm also trying to be more like Charlie Munger (Trades, Portfolio). As Munger once said:

"How do you learn to be a great investor? First of all, you have to understand your own nature. Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable and some losses are inevitable, you might be wise to utilize a very conservative pattern of investment and savings all your life. So you have to adapt your strategy to your own nature and your own talents. I don’t think there’s a one size fits all investment strategy."

When you understand your strengths, weaknesses and your circle of competence, waiting for the right moment to pounce when you have an edge is essential:

"Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor. We keep our heads down and handle the headwinds and tailwinds as best we can, and take the result after a period of years."

Disclosure: The author owns no stock mentioned.