Invest With Buffett, Like Buffett, or Both?

The annual  Berkshire Hathaway (BRK.A) (BRK.B) shareholder meeting will take place next weekend, with adoring throngs descending upon Omaha, Neb., to mix and mingle with other shareholders, shop for baubles at Borsheims Jewelry, and plug into the wisdom of Berkshire chairman and CEO Warren Buffett and vice chairman Charlie Munger.

Morningstar.com is kicking off wall-to-wall coverage of the event--jokingly dubbed "Woodstock for Capitalists"--starting this week. We'll have live blogging and videos from the meeting as well as premeeting coverage all this coming week.

To help get the ball rolling, I surveyed Morningstar.com readers to hear about Buffett's influence on their portfolios. Have they invested with Buffett directly by buying Berkshire Hathaway B shares, or has Buffett's focus on company quality and valuation inspired their own investment selections?

"Both," was the response of many Morningstar.com readers who posted in the thread. Although many respondents said they held some Berkshire shares, a healthy contingent said that Buffett's wisdom had contributed to their own philosophy on investment selection and portfolio management. To read the complete thread or share your own thoughts on Buffett's role in your portfolio, click here.

'I Need His Emotional Intelligence'
Alpha28 is a Berkshire Hathaway shareholder who attends the annual meeting each year but has no illusions about being able to match the Oracle's ability to keep a cool head in times of market strife. "I wish I could invest like Warren Buffett," this poster wrote. "I don't need his IQ to do better than I do. I need his emotional intelligence."

Other posters, meanwhile, said that Buffett's philosophy hasn't prompted them to invest in Berkshire Hathaway shares; instead, it has inspired their own stock selections or led them to copy Berkshire's holdings outright.

Matthew9 laid out the basic case for incorporating Buffett's influence into a portfolio. "Every portfolio ought to have some Buffett influence," this poster opined. "He's a once-in-a-generation investor and few can convincingly dispute his prowess. For someone of his worth he also encourages a more moderate lifestyle, which is very refreshing in our age."

Thanks to Buffett's influence, Ckripton thinks like a business owner rather than simply an investor, and also owns some of the very same companies that appear in Berkshire Hathaway's portfolio. "I invest in businesses. I tell people that I do not own stock in  Johnson & Johnson (JNJ),  Coca-Cola (KO), and  Walt Disney (DIS), but rather I own these businesses in my portfolio."

Like Ckripton, DividendRon thinks of himself as a business owner, and a patient one at that. "I am impacted by Buffett and his experience, such as knowing that time is the friend of a wonderful business," this poster wrote.

The classic Buffett strategy is to snap up high-quality companies on the cheap, something DuaneJ did during the 2007-09 bear market. "During the great Recession, for example, I was able to buy shares in companies with brand name panache that are usually a bit pricey. Coke, for example, which of course is a long-time Berkshire Hathaway holding. Also  Tiffany ,  Harley-Davidson (HOG),  Starbucks (SBUX), and Disney. (Later it came out that Berkshire Hathaway bought preferred positions in both Tiffany and Harley)."

Because of Berkshire's size and the chance that it could move the prices of companies it's attempting to buy, Raghubilhana warned against trying to amass a position at the same time Berkshire is. "I would not invest in the same stock immediately after Warren Buffett has purchased them because by then the stock price has already skyrocketed," this poster wrote. "I would definitely follow his principles of investing and try to find stocks with good valuations elsewhere. He is a living legend. There are definitely stocks out there Buffett cannot invest even if he wanted to because of market cap of such stocks. If the stock price comes even further down from the point when Warren Buffett had invested and he is still invested in that stock, I would definitely want to purchase that stock. An example would be  Goldman Sachs Group (GS) in late 2008 and  Bank of America (BAC) in the past year."

Win1177 wondered aloud if Berkshire's size could be an impediment, and also rues that it doesn't pay a dividend. "My one complaint is that I wish Berkshire would pay a dividend. It has grown to such a large size, I question whether they can deploy capital as effectively as he has in the past. Only time will tell. But if I had to entrust anyone with my capital, it would be Warren Buffett."

For Capecod, investing like Buffett means fully availing himself of the complete suite of investments available to investors today. "I invest like Warren actually invests rather than as he says he invests," Dick wrote. "Despite gaining lots of attention by calling derivatives 'instruments of financial mass destruction' and praising buy-and-hold strategies, Warren's frequently traded insurance portfolios are major derivative users, and he has personally made a major earnings-affecting speculative short equity index put position in Berkshire Hathaway. So like Warren, I believe in active investment management conducted by practitioners with the permissions and skills to use derivatives and the entire modern portfolio management toolkit."

'The Man, The Myth, and a Price/Book Ratio of 1.3'
The largest contingent of respondents said that they do both: Not only has Buffett influenced their investment philosophy and choice of individual securities, but they're also proud owners of Berkshire Hathaway shares.

ComStar likes to scoop up Berkshire shares on the cheap, writing, "A very large percentage of my taxable investment accounts are invested directly into Berkshire Hathaway. Whenever the shares are trading below intrinsic value (using the method Buffett outlined in the 2010 letter, and with information updated with each ensuing letter), I make my determination of how much the shares are worth, and then buy whenever it is trading significantly below that amount."

But this poster has also used Buffett's teachings to improve as an investor. "I certainly do not claim to have the talent or temperament to match his ability, but his investment approach is one that I try to emulate."

Rathgar is also bullish on Berkshire shares for a taxable account; at the same time, this investor aims to incorporate Buffett's approach into stock-picking. "Everyone should own some of his Berkshire Hathaway stock in a taxable account," this poster enthused. "It is very tax-efficient, has no expense ratio like a mutual fund/exchange-traded fund, is a well-diversified holding with both private and public companies, and is overseen by a great investor who only earns $100,000 for his efforts. Lastly, a good succession plan is in place and the long term values should endure. So yes, I own the stock. I also follow his overall advice as it relates to his temperament for investing."

Stockvapors has taken a similar tack, investing in Berkshire shares while also aiming to learn from Buffett. On the attractiveness of Berkshire Hathaway shares, this poster wrote, "With the man, the myth and a price/book ratio of 1.3, it is hard to resist. Yes, I own the stock and have been well rewarded so far." Among the key investing lessons stockvapors has picked up from the Oracle? "Be greedy when others are fearful " and "Invest to own great companies, not stock."

FrankTX is also a proud Berkshire Hathaway shareholder and will be attending his 12th annual meeting. One of the key advantages of owning Berkshire, this poster wrote, is that "it is the only way to access wonderful businesses like Burlington Northern Santa Fe and GEICO." But like the other Buffett backers, FrankTX has benefited from Buffett's wisdom with the rest of his portfolio, too. "Buffett's advice to 'be greedy when others are fearful' led me to rewarding purchases of  Bank of Nova Scotia (BNS), McGraw-Hill Companies (MHP),  Tim Hortons , and T. Rowe Price (TROW) at deep discounts during 2008. The 'favorite holding period is forever' quote also resonates."

Chococat12, like many of us, owns Berkshire shares indirectly through mutual funds, but aims to learn from Buffett, too. "I read the letter to shareholders every year and have read all Benjamin's Graham's books too. Surrounding oneself with clear thinking never hurts!"

Proxysteve has only a small stake of his portfolio in Berkshire but aims to employ a Buffett-esque--and Graham-esque--approach, and he looks for his fund managers to do the same. "I try to find active mutual fund managers who takes a Buffett-esque approach, although I'm also not opposed to ones who often take more of a Graham cigar-butt approach also (for example, [ Fairholme (FAIRX) manager Bruce] Berkowitz)."

'As for Investing Like Buffett, I Can Only Dream'
Berkshire Hathaway shares appear in the Jimoak portfolio, and this poster also aims to infuse his investments with Buffett's tenets. "As for investing like Buffett, I can only dream, but there are two principles I try to remember: one, it is better to pay a fair price for a good investment than to pay a good price for a fair investment; and two, having a long term investment horizon can bail you out when you overpay for a good investment. Many investors overlook the power of selecting investments that you can hold for 20-plus years. Patience is not always rewarded, but it's surprising how often it is."

Finally, Rideon49 opined that some humility is in order: While investing like Buffett sounds appealing in theory, it could be difficult to pull off in practice. "It's easy to invest with Buffett by buying Berkshire stock," this poster wrote, "but to invest like him is something we all think we would like to do, but is easier said then done. We can copy his stock picks to fill our portfolios, but i could never evaluate a company or have the insight like he does."

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