Warren Buffett is not a good investing role model for most of us

“Buffett…Warren Buffett…naam to suna hoga (you must have heard of me)?” can be a line from a yet to be made cross over movie with Shah Rukh Khan playing Buffett’s role.

Now, that kite flying aside, who in the investing world hasn’t heard of the billionaire investor Buffett? But what if I were to say that Buffett is not a good investing role model for most. Well, that might draw out the knives: “What’s this idiot saying?,” many might ask. But allow me to explain.

What’s the key reason behind Buffett’s extraordinary success? At the risk of making things slightly simplistic, and among other reasons, I would say it is his ability to read a huge number of pages every day, turn information into knowledge, knowledge that helps him make connections, connections that in help him make long-term investing decisions and buy stocks which are under-valued by the stock market at that point of time, and then hold on to them for almost eternity.

Or as Buffett has put it in the past: “I just sit in my office and read all day.” Or that: “Read 500 pages like this every day... That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

And there are reasons why many people can’t read at the pace that Buffett does, and if they did, Buffett wouldn’t be Buffett. First, most people are caught up with our daily lives and don’t have that kind of time to read like Buffett, who spends his working day reading. There is a job to be done, a salary to be earned, EMIs and taxes to be paid, and family commitments to be taken care of. Lives play out differently for different people.

Second, many don’t have the aptitude to read as much as Buffett does. They are not mentally built that way. Third, even those who can read as much as Buffett does, do not have the skill and the ability to convert that information into useful knowledge, simply because Buffett is a really smart and intelligent person.

Fourth, reading does not lead to immediate rewards. Its benefits and cumulative advantages add up over a period of time—something that most of us who are looking to get rich by tomorrow morning—aren’t really mentally built to handle.

Of course, all this is backed up with the ability to wait or have patience for investing decisions to play out and deliver superior returns over a period of time. Or to not get carried away with whatever is the flavour of the season. Buffett successfully managed to keep himself away from the dotcom bubble of the 1990s and the subprime bubble of the 2000s, when most investment managers couldn’t. The returns that he earned during these periods were significantly lower than what many others were earning.

This showed patience and a massive clarity of thought to not get swayed by what everyone else was doing, something which most of us find very difficult to do. It’s always easier to go with the herd, and for a while going with the herd makes the investment decision look and feel right, until it doesn’t. Buffett’s investing strategy looked terrible from the mid-1990s up until early 2000 when the dotcom bubble started running out of steam. And then it didn’t.

In fact, as Buffett said in his annual letter for the year 2000 to the shareholders of Berkshire Hathaway: “By shamelessly merchandising birdless bushes, promoters have in recent years moved billions of dollars from the pockets of the public to their own purses (and to those of their friends and associates). The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them. Too often, an IPO [initial public offering], not profits, was the primary goal of a company’s promoters. At bottom, the ‘business model’ for these companies has been the old-fashioned chain letter, for which many fee-hungry investment bankers acted as eager postmen.”

He went on: “But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street – a community in which quality control is not prized – will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.”

Most of us humble souls lack this smartness, clarity of thinking and the patience needed to make what works for Buffett work for us. In fact, as Scott Galloway writes in The Algebra of Wealth—A Simple Formula For Success: “Outliers make for great inspiration…but lousy role models.” This explains why it is easy to talk about what Buffett does, but very difficult to implement.

Now, that leaves us with the question, if not Buffett, then who should be the inspiration for us lesser mortals. The answer is Ronald Read, someone you must have never heard of dear reader. As Galloway writes: “Ronald Read, the first person in his family to graduate from high school, worked his entire life as a janitor, lived frugally, and invested in blue chip stocks. When he died at 92 [in 2014], he left behind an estate worth $8million.”

So, what did he do? He started investing in an era when index funds weren’t really the order of the day. So, he bought stocks of big blue-chip companies and held them for the long-term and just let time do its things.

In this day and age, it is easier to implement this kind of strategy by investing in index funds. Index funds invest in stocks that make for a particular index. So, you could invest in index funds which invest in stocks that make for the Nifty 50 index, and then hold on to the investment and let time do its thing.

Of course, this investing strategy is as boring as they come. There is no fun in it. It doesn’t get the adrenaline going. It doesn’t give you anything to talk about with friends. There is no IPO chasing happening here. But then the choice is yours dear reader: Do you want to make money or just have fun? Do remember there are cheaper ways to have fun than with your hard earned money.