Stop kidding yourself. You can't invest like Warren Buffett.
It doesn't matter if you've read classic tomes like Buffett's recommended Security Analysis by Benjamin Graham and David Dodd... studied every Berkshire Hathaway annual report... or even made the trek to Omaha, Nebraska for Berkshire's shareholder meeting.
It's not a matter of knowledge, skill, temperament, or even capital. You simply can't do what Buffett does today...
Some decades ago, you might have matched wits with a young Buffett. The market does offer undervalued shares from time to time. If you mustered extreme patience and kept your emotions in check, you could have produced good returns with the same methods Buffett used for the first few decades of his career.
But today, Buffett is a brand. He doesn't simply invest... he signals.
The mention of his name can bring companies back from the dead. Thanks to that, he sees deals you'll never see...
This year, Canadian mortgage lender Home Capital Group came under pressure after regulators questioned the validity of its books. That, paired with the frothiness of real estate prices in Toronto and Vancouver, sent shares of Home Capital plunging. Depositors started pulling cash, threatening a bank run.
Home Capital turned to Buffett for a rescue. Once Buffett's investment was disclosed to the public, shares tore 27% higher.
But Buffett didn't just invest. He got one hell of a sweetheart deal.
First, Buffett got a discount on shares. He bought 38% of the company for about C$10 per share at a time when the market price was nearly C$15. The "Buffett bounce" pushed shares to C$19, though they've since settled back to around C$14.
He also provided C$2 billion of loans to Home Capital at a 9% interest rate...
You can't get a deal that good. Almost no one can... except Buffett.
Well-known short-seller Marc Cohodes, an outspoken investor who has bet against Home Capital said, "If it weren't Warren Buffett's name, [Home Capital] would be destroyed today, just absolutely destroyed, because it's that horrible of a deal." Cohodes means that the deal is so rich for Buffett that it's unfair to shareholders.
Buffett did this same thing multiple times during the financial crisis...
He invested $5 billion in Goldman Sachs in 2008 for preferred shares that paid 10% a year in dividends. No one else in the world could buy those shares! After shares converted to regular stock, those shares he paid $654 million for are worth almost $3 billion today.
When Buffett invested $5 billion in Bank of America in 2011, he got high-dividend preferred shares – again, which no one else could get – along with warrants to buy more Bank of America shares that were designed just for him. Now his stake is worth $12 billion and he has collected nearly $1.5 billion in dividends on top of that.
At his 2013 annual shareholder meeting, Buffett quipped that "Berkshire is the 800 number when there is really some panic in the markets and people really need significant capital."
If you're so inclined, you can pair with Buffett by buying shares of Berkshire Hathaway (BRK-B). In fact, it's a recommended holding in my Retirement Millionaire newsletter. But it pays no dividends.
However, most of the time, we prefer to get paid. And we love current income...
In a recent issue of my Income Intelligence newsletter, we told subscribers about another opportunity to invest with folks who have a special advantage... Like Buffett, they get to see the best opportunities before anyone else. In the industry, it's called "deal flow."
It shows up in areas like venture capital ("VC"). The biggest and best tech startups don't go out and scrounge for money. The big-name firms like Andreessen Horowitz or Sequoia Capital don't get better returns by ferreting out unearthed ideas. Rather, the best startups come to them because they offer better connections and smart advisors. The top VC firms get the best deal flow.
So does our recent Income Intelligence investment. It has a world-class brand name and a network that allows it first dibs on the best real estate deals across the globe. It's good for an 8% yield and a share price that's protected against rising interest rates.
To learn more about this investment and how to find deals like Buffett, click here to get started with Income Intelligence.
What We're Reading...
- Something different: Does music give you goosebumps? Your brain might be special.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Retirement Millionaire Daily Research Team
September 13, 2017