Naysayers Are Wrong: You CAN Emulate Warren Buffett

Overview

Warren Buffett, since 1965 the Chairman, CEO and by far the biggest owner of Berkshire Hathaway, Inc. (hereafter “Berkshire”), recently announced that he’ll retire, at 95 years of age, at the end of this year. His stewardship has transformed Berkshire from a struggling manufacturer of textiles into a cash-gushing conglomerate that’s one of the world’s top-12 (by market capitalisation) corporations.

For this and a host of other reasons – not merely as a result of what he’s done but also of how he’s done it – he’s rightly been lauded as the greatest investor of his era, and one of the greatest (if not the greatest) ever.

Yet over the years sundry people have criticised various aspects of Buffett’s philosophy and Berkshire’s operations. I’ve selected three critics and tested their criticisms. On the one hand, their assertions aren’t completely groundless. On the other, they mix bits of truth with large amounts of misconception and invalid inference.

Overall, these critics’ knowledge of Berkshire’s operations and results is so woeful that, in effect, it’s (I assume unintentionally) misleading.

Unlike these critics, I assess Buffett’s words. Can you emulate him? He’s unequivocal: you can. Whether you choose to become what his mentor, Benjamin Graham, called a “defensive investor” or an “enterprising investor” isn’t important.

What’s crucial is that you develop Buffett’s – which is essentially Graham’s – ethos and mindset. Only if you do so can you emulate their approach to investment.

Unlike Buffett’s critics (and, in fairness, his admirers), I also assess Berkshire’s results. Can you replicate them? I demonstrate that value investors can reasonably aspire to approximate its results since the turn of the century.

Leithner & Company provides an example: since 1999 and in an Australian context, its results vis-à-vis the All Ordinaries Accumulation Index resemble Berkshire’s relative to the S&P 500’s total returns.

How might you replicate Buffett’s results? Unlike his critics (and, again, his acolytes), I also examine Berkshire’s financial statements. I demonstrate that the crux of what it’s done since the turn of the century (namely accumulate cash and equivalents and buy the shares of large, well-established but out-of-favour and thus underpriced companies in essential industries) both defensive and enterprising investors can also do.

My conclusion is two-fold. Firstly, Buffett’s greatest legacy is the broad applicability of his investment philosophy. Secondly, not only can you emulate him: to the extent that you possess the virtues which underpin intelligent investment, you already resemble him more than you think.

Let’s Start with Buffett’s Words

It’s a widely-known fact: Warren Buffett was a student – literally, at Columbia University in the early-1950s – of Benjamin Graham. Yet it’s vital to bear in mind something that many of these investors have apparently forgotten: throughout his career Buffett has remained, figuratively speaking, a faithful follower of Graham.

It’s hardly an insight: Buffett has repeatedly acknowledged his immense intellectual debt to Graham. The author of The Intelligent Investor: A Book of Practical Counsel, Graham believed that the average person could, with effort, practice what he taught. In the Foreword of its 4^th (1973) edition, Buffett wrote: “I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is … To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life.”

Buffett has never qualified – never mind recanted – these tributes.

Of course, different eras create dissimilar circumstances, and thus necessitate different emphases. The 1930s, for example (when Graham established his principles and became widely known in Wall Street), bear little resemblance to the 1970s and 1980s (when Buffett’s returns skyrocketed and he rose to prominence).

Hence Graham, who was scarred by his experiences during the Great Depression, probably wouldn’t have touched several of Berkshire’s signature investments such as See’s Candies. Equally, however, the same very investment which underpinned Graham’s success as an investor, Government Employees Insurance Co. (later GEICO), is also one of the half-dozen or so which cemented Berkshire’s.

A crucial point follows: Buffett has extended and elaborated Graham’s philosophy, and adapted it to changing circumstances, but has left its foundations untouched.

What are its principles? In one of the Commentaries in The Intelligent Investor’s 2008 edition, Jason Zweig summarised them: 

1. A stock isn’t merely a ticker symbol, blip on a screen or squiggly line on a graph: it’s an ownership interest in an actual business.
2. The value of this business often doesn’t equal the price of its shares; indeed, price and value can – and occasionally do – differ greatly.
3. The future return of every investment depends inversely upon its present price. The higher is the price you pay today, the lower tomorrow’s return will be.
4. The stock market is, in effect, a pendulum that swings erratically between extremes of untenable optimism (which makes stocks excessively dear) and unjustified pessimism (which renders them unreasonably cheap). Graham’s intelligent investor is a realist who first buys from pessimists and later sells to optimists.
5. No investor can ever eliminate error. Indeed, making mistakes isn’t a possibility: it’s a certainty. Only by demanding what Graham called the “margin of safety” – never overpaying, no matter how exciting an investment or how bright it prospects seem to be – can you minimise their number and magnitude.
6. The source of your success – or failure – lies inside yourself. You, in other words, are both your best friend and worst enemy. Your results will reflect your behaviour – and your actions will mirror your virtues and vices.

Hence “emulating Buffett” does NOT mean parroting his every utterance and mimicking his every move. It means applying his – which is Graham’s – framework in a way which fits your circumstances and goals; it means adopting and exercising your judgment regarding points 1-6.

Are critics asserting that you can’t judge for yourself? Or do they reject these principles? Or both?

Graham contrasted the “enterprising” investor (who is willing “to devote time and attention to securities that are sounder and more attractive than the average”) from the “defensive” investor (who “will place his chief emphasis on the avoidance of serious mistakes or losses”).

Many people – including, as we’ll see, his critics – completely misunderstand this crucial point: the enterprising investor DOESN’T take greater risks than the defensive investor.

Whether they’re defensive or enterprising, can normal, everyday individuals invest successfully? Like Buffett, can they adopt Graham as their mentor? Buffett’s position is unequivocal: “to invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. (The Intelligent Investor) precisely and clearly prescribes the proper framework. You must supply the emotional discipline.”

Buffett goes further: “if you follow the behavioral and business principles that Graham advocates – and if you pay special attention to the invaluable advice in Chapters 8 and 20 – you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.) Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career.”

Buffett concludes: “the sillier (is) the market’s behaviour, the greater (will be) the opportunity for the business-like investor. Follow Graham and you will profit from folly rather than participate in it.”

Correcting a First Misconception: Berkshire’s Medium-Term Results since 1970

In its Annual Report 2024, as it’s done for decades, Berkshire tabulated the annual percentage change since 1964 of (1) its “per share market value” and (2) the S&P 500 Index (dividends included). Cumulative results and summary comparisons appear at the foot of these data. Berkshire’s “annual compounded gain – 1965-2024” was 19.9%; the Index’s was 10.4%. Its “overall gain – 1964-2024” was a mind-boggling 5,502,284% and the Index’s was 39,054%.

The typical – indeed, pervasive – focus upon and adulation of Berkshire’s 60-year cumulative returns entails three severe drawbacks.

Firstly, for virtually all but a handful of people they’re irrelevant; specifically, they’re pertinent only to that very small number of extremely wealthy (thanks to Buffett!) people who’ve held Berkshire’s shares continuously since 1964. As we’ll see, we can’t infer from them the return on an investment in Berkshire during the 60 years to 2085.

Secondly, the focus upon Berkshire’s cumulative returns since 1964 has an unintentionally but nonetheless deeply invidious implication: these results are so outstanding that they encourage critics to assert absurdities such as “Buffett’s a freak; as such, he has nothing to teach you; therefore ignore him.” Finally, this focus has led virtually most people – whether Buffett’s admirers or his detractors – to overlook a crucial feature of Berkshire’s results over the past quarter-century.

For these three reasons, much more relevant are (a) Berkshire’s results over relatively recent periods and (b) over a more reasonable (say, five-year) holding period.

Figure 1: Five-Year CAGRs, Berkshire Hathaway versus the S&P 500, 1970-2024

I’ve converted the annualised returns in Berkshire’s Annual Report into five-year compound annual growth rates (CAGRs). Figure 1 plots the results; three are paramount:

1. except during the recession and severe bear market of the early-1970s, before the turn of the century Berkshire’s five-year CAGRs were astounding;
2. Berkshire’s heyday occurred during the early-1980s: in 1975-1980 its CAGR was nearly 60% per year.
3. thereafter, and particularly since the turn of the century, its CAGRs have fallen considerably.

Figure 2 plots Berkshire’s five year CAGRs net of the Index’s. In 1965-1970, for example, Berkshire’s was 17.3% and the Index’s was 4.1%; hence over that five-year period Berkshire outperformance was 17.3% – 4.1% = 13.2% per year. Its mean five-year outperformance is 10.2% – a margin which it’s failed to reach over the past 20 years.

Figure 2: Berkshire Hathaway’s Five-Year CAGR Net of the Index’s, 1970-2024

Figure 3 compares Berkshire’s and the Index’s average five-year CAGR in 1970-1997 and 1998-2024. Before 1998, Berkshire vastly outperformed: its average five-year CAGR was 29.3% per year, whereas the Index’s was 11.4%. Since 1998, Berkshire has continued to outperform – but the margin has shrunk to 1.5% per year. Its average CAGR is 11.5% per year and the Index’s is 10.0%.

Figure 3: Mean Five-Year CAGRs, Two Long-Term Periods, Berkshire versus the Index

Investors who rigorously apply Graham’s and Buffett’s mindset and methods can reasonably aspire to results such as Berkshire’s since 1998. Make no mistake: these results set a very high bar, and relatively few investors will achieve them; equally clearly, they’re far more realistic than Berkshire’s CAGRs from the 1970s to the 1990s.

Why emulate somebody who over the past quarter-century has, on average, modestly outperformed the Index? Average outperformance of 1.5% per year mightn’t sound great, but it’s superb. An investor whose results match – never mind exceed – an index’s over periods of more than 5-10 years, as Berkshire’s do and as Standard & Poor’s has detailed over the past several decades, certainly surpasses at least 80% and probably more than 90% of others professionals’ results.

Average outperformance of 1.5% per year over more than 25 years surely exceeds 97.5% or more of other investors.

Moreover, if you’re asking this question you’ve not read Graham – or if you have, you haven’t understood him. In The Intelligent Investor, he defined an investment as “an operation which, upon thorough analysis, promises safety of principal and a satisfactory return.” Berkshire’s results amply satisfy this criterion.

Why have Berkshire’s five-year CAGRs decreased over the years? It’s the result of several factors; two are most significant: 

1. As we’ll see in the next section, Berkshire has become a massive entity; as a result, it’s become ever more difficult to locate sufficiently large investments that can maintain – never mind significantly boost – its long-term performance.
2. As we’ll also see, Berkshire has accumulated gigantic holdings of cash and equivalents. They provide the dry powder which it’ll require to finance enormous investments; meanwhile, place an ever lower ceiling over its results – and potentially beget underperformance.

Correcting a Second Misconception: What Berkshire Actually Does

The disparity is enormous: a large number of people, ranging from the highly knowledgeable to the utterly uninformed, parse Buffett’s every word. A considerably smaller number of observers assess his actions; even fewer do so systematically (that is, quantitatively rather than anecdotally) and over the very long-term; and practically nobody, to my knowledge, analyses in detail and over long periods of time the numbers in Berkshire’s financial statements.

Leithner & Company has long done so. Our analyses make plain the fundamental point which those who ignore Berkshire’s financial statements overlook: it’s always applied – and presently continues to practice – key tenets of Ben Graham’s philosophy of investing.

I’ve categorised Berkshire’s assets into (1) cash and equivalents such as Treasury bills; (2) bonds (that is, debt securities whose duration is more than one year); (3) listed equities and (4) all other assets. I’ve adjusted these amounts for the U.S. Consumer Price Index; Figure 4 plots the results. Its total assets have risen from $0.246 trillion in 2000 to $1.154 trillion in 2024.

Berkshire has always held considerable quantities of cash and Treasury bills. Adjusted for CPI, these assets grew from $10 billion in 2000 to $331 billion in 2024. In contrast, its holding of bonds has been comparatively light and has fallen rapidly: adjusted for CPI, it’s shrunk from $59 billion in 2000 to $15 billion in 2024.

Figure 4: Berkshire Hathaway’s Assets, Total and Four Components, CPI-Adjusted Billions of $US, 2000-2024

Berkshire also holds a massive quantity of the stocks of public companies. This category grew from $38 billion in 2000 to $303 billion in 2024. Most recently and notably, Berkshire accumulated a huge stake in Apple, Inc. between the first quarter of 2016 and the third quarter of 2018. It sold some of these shares in late-2018 and during 2019 and 2020, resumed its purchases in 2022 and reduced its stake significantly throughout 2024. At the beginning of last year it held more than 905 million Apple shares worth almost $164 billion; during the year it sold roughly two-thirds of this stake; and on 31 December it retained 300 million shares whose market value was ca. $47 billion.

Today, Apple remains Berkshire’s largest holding and continues to comprise nearly one-quarter of its portfolio of listed equities.

Over the years, the “Other” category has included assets whose value has increased from $60 billion in 2000 to $505 billion in 2024. Last year it included loans, finance and other receivables ($76.2 billion), inventories ($24 billion), property, plant and equipment and equipment held for lease ($222.9 billion) and goodwill and intangibles ($139.3 billion). Stripped of various complexities, this “Other” category includes the unlisted companies of which Berkshire owns at least 50% and usually 100%. Over the past decade, this category’s total value has averaged $478 billion and in inflation-adjusted terms hasn’t risen.

Figure 5 summarises the rate of growth (or shrinkage) of Berkshire’s total assets and its categories. It therefore encapsulates its activities over the past quarter-century.

From 2000 to 2024 and net of consumer price inflation, total assets’ CAGR was 6.6% per year – exactly the same as “Other” assets. Berkshire’s listed equities grew almost as fast (6.4% per year), its holding of bonds shrunk 5.5% per year and its holdings of cash and Treasury bills grew by far the fastest (15.9% per year). If we exclude the gush of cash in 2024, this category’s 22-year CAGR to 2022 was 13.0%.

Figure 5: Growth of Berkshire’s Assets, CPI-Adjusted 24-Year CAGRs, 2000-2024

It’s undeniable: Berkshire can do some things that no individual investor can. Most notably, it can and on dozens of occasions has purchased companies outright; still less can individual investors outlay scores of millions, never mind hundreds of millions and billions, on these purchases. Similarly, no individual – and probably no more than a handful of global behemoths – could spend $150 billion or more on the shares of Apple.

But it’s equally indisputable: apart from their vast scale, Berkshire’s primary activities are no different from those which any investor can undertake.

Figure 6, which expresses these categories of asset as percentages of the total, demonstrates this key point. Since the early-2000s, the “Other” category has continuously comprised the single largest percentage of Berkshire’s total assets. However, its percentage has steadily decreased (from 60% in 2016 to 44% in 2024).

Figure 6: Berkshire Hathaway’s Assets, Four Components as Percentages of Total, 2000-2024

Also since the early-2000s, Berkshire’s portfolio of listed stocks has comprised its second-largest (and a mostly rising) percentage of total assets. They comprised ca. 20% in the early-2000s, rose as high as 38% in 2018 and remained as high as 36% in 2023; in 2024, partly as a result of the sale of its enormous stake of Apple shares, the percentage plunged to 26%. That was the lowest percentage since 2016.

Finally, Berkshire’s holding of bonds has virtually disappeared (from 41% of assets in 2001 to just 1% in 2024), and its hoard of cash and Treasury bills more than halved from 45% of total assets in 2001 to 17% in 2014, and remained steady for almost a decade thereafter. But in 2024 it vaulted – indeed, virtually doubled – to 30%.

Consequently, and measured by the variance of each year’s set of percentages, in 2024 Berkshire’s portfolio was more diversified than at any time since 2007 – and only in 2004-2007 was it more diversified than in 2024.

Figure 7 elaborates a key implication: obviously you can’t emulate everything that Buffett and Berkshire do – but in essence you can replicate approximately one-half of it. I’ve summed cash and Treasury bills, bonds and listed equities as percentages of Berkshire’s total assets. The sum of these percentages has averaged 52% (the “Other” category, which includes the unlisted businesses of which Berkshire owns at least 50% and usually 100%, comprises the other 48%).

You can’t accumulate $300 billion of three-month Treasury bills, but you can buy three-month term deposits. Similarly, you can’t amass a portfolio of $270 billion of listed equities, but you can build a portfolio of listed shares.

Figure 7: Things You Can Emulate v. Things You Can’t, Percentages of Berkshire’s Total Assets,
2000-2024

Berkshire’s Application of Graham’s “75-25” Rule

Over the past several years, many observers have asked questions such as: why does Berkshire currently hold so much cash and equivalents? Virtually all of them have obsessed about its quantity (admittedly, more than $300 billion is an enormous number!) but far fewer have considered these assets percentages of Berkshire’s total assets. They’ve also incessantly gossiped: how is Berkshire going to deploy all this cash?

But nobody, to my knowledge, has asked a much more important question: why, since at least the turn of the century, has Berkshire always held so much cash? The answer, I believe, lies in Berkshire’s adherence, at least roughly, to Graham’s “75-25” rule.

“We have suggested as a fundamental guiding rule,” wrote Graham in The Intelligent Investor, “that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50-50, between the two major investment mediums.”

The more “defensive” is the investor, the higher should be the allocation to cash, bills and bonds; conversely, the more “enterprising” is the investor, the higher should be the allocation to stocks.

Graham was equivocal about varying a portfolio’s percentages of assets response to market conditions (“tactical asset allocation”). Consequently, he was able to “give the investor no reliable rules by which to reduce his common-stock holdings toward the 25% minimum and rebuild them later to the 75% maximum.”

Figure 8 plots, as percentages of Berkshire’s total assets, its cash, bills and bonds, its listed equities and the sum of its listed and unlisted equities. Over the past 20 years until 2024, cash and equivalents comprised ca. 20% of Berkshire’s total assets, and the combination of listed and unlisted equities ca. 80%.

Figure 8: Berkshire’s Cash and Equivalents versus Equities, Percentages of Total Assets, 2000-2024

As the greatest investor of his time, Buffett amply qualifies as a “super-enterprising” investor. As such, he’s slightly amended Graham’s “75-25” rule to an “80-20” rule. He’s adapted Graham’s philosophy to his immense talent and changing circumstances, but has left its principles untouched.

Assessing Criticisms of Buffett and Berkshire

Since the 1970s, Buffett hasn’t lacked critics. Having considered Buffett’s words and analysed Berkshire’s results and operations – which, crucially, his critics haven’t – we’re now in a position to consider their criticisms. Because they repeat, more or less, those of his naysayers over the past couple of decades, I’ve selected three critics: 

1. Chris Barth, “Why Joe 6-Pack Can’t Invest Like Warren Buffett” (Forbes, 7 July 2011);
2. Carl Capolingua, You’re no Warren Buffett! 6 reasons why the Buffett approach won’t work for you (5 May 2025); and
3. Marcus Padley, “Why Warren Buffett’s Strategy is Failing You” (marcustoday, 12 July 2024).

Criticism #1: Buffett Is Unique; Therefore You Can’t Emulate Him

Barth writes: “Buffett didn’t start out as a regular Joe. His father, Howard Buffett, was a stock broker and four-term Congressman, and the Buffett household was full of intelligent conversation about business and money … On top of that, Buffett is singularly motivated and fiercely intelligent … It’s (therefore) downright impossible for the average Joe 6-Pack to match Buffett’s success, even if they draw upon his techniques. Despite the fact that he draws much of his investment strategy from Graham, the father of value investing, Buffett is a one of a kind investor. Being the world’s third richest person comes with a lot of real advantages that individuals off the streets just can’t mimic.”

Straight off the bat, it’s easy to drive a lorry though this criticism: it utterly ignores the crucial reality that drawing “much of his investment strategy from Graham” has made Buffett one of the world’s wealthiest individuals!

Capolingua goes much further than Barth. “Here’s the hard truth: investing like Warren Buffett might be one of the worst decisions an average investor can make. Not because Buffett’s principles are flawed, but because you’re no Warren Buffett – and you never will be.” Padley’s “criticism” doesn’t even rise to the level of being wrong; it’s simply incoherent: “forget Warren. You are not Warren. You are you, rely on that or as close as you’re going to come to Warren Buffett is living in the same crappy house and driving the same crappy car for the rest of your life.”

These assertions mix a few facts with plenty of invalid inference. 

Yes, Buffett is the son of a Congressman; yes, he’s super-intelligent (see the conclusion for a definition), and yes, there will never be another investor like him (see Jason Zweig, “Why There Will Never Be Another Warren Buffett,” The Wall Street Journal, 3 May). In short, he’s unique.

But all of us are unique: Buffett’s one of a kind, so are you and so am I. It’s nonsensical to infer that one unique individual (such as you) cannot learn from another (such as Buffett). To cite just one of countless possible examples from innumerable fields: Margaret Court and Roger Federer are unique. If Barth, Capolingua and Padley are correct, then children with big dreams and middle-aged duffers with faded hopes can learn nothing from them (or Ash Barty, Rod Laver, et al.).

Not one in a billion people will match – never mind exceed – their talents and achievements. The same is likely true of investors and Buffett.

That’s not the point. The point is: will those who emulate them tend to become better players and investors? Or should neophytes spurn all competent counsel, worthy role models, etc., and play their own idiosyncratic game? (Astonishingly, this latter option, in effect and as we’ll see, is exactly what Marcus Padley advocates!)

Criticism #2: Buffett’s Success Is Attributable to Advantages You Don’t and Can’t Have

This is the crux of Capolingua’s criticism. “Buffett’s results,” he asserts, “came from reputation, privilege, access, and hard-fought strategic advantage, and not simply buying and holding undervalued stocks.” Specifically, he attributes Berkshire’s success to “insurance float advantage,” “tax-efficient investment structures,” “asymmetric upside through custom deals,” “direct access to policymakers” and “access to private placements and preferential treatment.”

It no secret that Berkshire’s “float” is, in effect, an interest-free loan. Similarly, nobody doubts that it possesses “strong hands” and has thereby benefitted from bespoke deals at opportune times such as the GFC.

The problem is that Berkshire isn’t the only major insurer which uses its float to buy stocks; indeed, nowadays all of them do. Nor is it the only behemoth with influence in Washington. More generally, in three respects Capolingua’s assertion that these factors explain Berkshire’s success is demonstrably false.

Firstly, they fail to explain why its greatest returns by far occurred during the 1970s and 1980s – well before Buffett received “asymmetric upside through custom deals,” possessed “direct access to policymakers” and “access to private placements and preferential treatment.” Secondly, if these factors explain Buffett’s success then why have Berkshire’s five-year CAGRs sagged so dramatically since the turn of the century? As Capolingua says, “Berkshire has influence in Washington and Wall Street circles far beyond the average investor’s reach.” But as its influence has waxed, why has its outperformance waned?

Although I doubt it, the most that Capolingua can reasonably suggest – subject to the confirmation of detailed, rigorous and dispassionate analysis – is that a couple of his nominated factors once contributed in a minor way to Berkshire’s phenomenal results. He certainly can’t claim that they’ve underpinned them.

Thirdly, according to Capolingua “every time we’re told to ‘be like Buffett,’ there’s little mention that we have very little chance in reality to be like him. Buffett’s terms are fundamentally different to what we’re going to get.” That’s not simply false; the polar opposite is true: Capolingua fails to mention any of the many instances when you had every chance to act like him. Above all, he omits to mention what Buffett said at Berkshire’s AGM in May: “I’m somewhat embarrassed to say that Tim Cook (Apple’s CEO, who was seated nearby) has made Berkshire a lot more money than I’ve ever made Berkshire Hathaway.”

Assuming an average cost basis for Berkshire’s investments in Apple of $35, its sales of the stock in 2023 and 2024 generated a total capital gain of roughly $100 billion. Adding dividend income of approximately $5 billion and the unrealised capital gain of ca. $50 billion from the Apple stock that Berkshire owned on 31 December2024, Berkshire’s total pre-tax gain from its investment in Apple is ca. $150 billion. Cook and Apple have certainly made Berkshire a huge amount of money, but Buffett has unquestionably made it far more. His tribute to Cook, like many of his other compliments over the years, is an appreciative exaggeration.

Berkshire’s massive profit from its investment in Apple comprehensively refutes Capolingua’s criticism.

Firstly, it involved neither “asymmetric upside through custom deals” nor “direct access to policymakers” or “access to private placements and preferential treatment.” Secondly, on a CPI-adjusted basis its profit has utterly dwarfed Berkshire’s gains from the “custom” deals which Capolingua details.

I estimate that, adjusted for CPI and including dividends, these “custom deals” have generated $16.8 billion of pre-tax profit (the profit from the deal with Bank of America was by far the biggest; those from several others were marginal – and Capolingua omits to mention that the Kraft-Heinz deal lost $6 billion).

Berkshire’s investment in Apple generated nine times as much CPI-adjusted, pre-tax profit as all of these “custom deals” combined (Figure 9).

Figure 9: Berkshire’s Total Profit (including Dividends), Apple versus “Custom Deals,” CPI-adjusted Billions of $US

To the profit from Apple, add Berkshire’s massive gains from its many investments in listed (or once-listed) stocks over the decades, such as American Express, Coca-Cola, GEICO, Washington Post and Wells Fargo; on this basis, the importance of Berkshire’s far smaller number of bespoke deals fades even further into insignificance. You couldn’t have bought remotely as many Apple shares as Berkshire did, but you could’ve purchased some – and received the same profit on a pre-tax, per share basis that Berkshire has.

To use Capolingua’s words, Berkshire’s massive profit from its investment in Apple, like those from AmEx, Coca Cola and all the others, was a matter of “simply buying and holding undervalued stocks.”

Criticism #3: You Don’t Have the Risk Tolerance, Time or Patience to Invest Like Buffett

Barth contends that “the most obvious difference between Buffett and the average investor off the street lies where it counts – the wallet. Berkshire Hathaway … has a market cap of $188 billion and $41 billion in cash (Barth, remember, was writing in 2011). Those … numbers mean Buffett can take big risks in pursuit of his impressive gains, while individual investors – who often have lower risk tolerance – are better off sticking with more surefire investments.”

The assertion that Buffett and Berkshire take “big risks” is simply risible.

As we’ve seen, Berkshire holds far more cash and equivalents – as a percentage of its total assets – than do most investors; it also holds shares of market-leading firms with long histories of profitability, and it has purchased them at discounts to reasonable assessments of their worth. Is that taking “big risks”?

Barth’s criticism also contradicts Capolingua’s. The latter implies that Buffett’s privileged access to information and decision-makers reduces Berkshire’s risks; yet Barth claims that Berkshire takes “big risks.” Which is it?

Padley goes further: “if you were to attempt to invest on the Warren Buffett template you will need his patience, but the reality is that you can’t afford it. No-one seems to realise that Buffett has a very different risk profile to mortal investors … He can afford to be patient … (But) let’s face it, you do not have the risk profile of Warren Buffett and because of that you cannot invest on the same timeframe, which is a critical part of the value investment thesis. You have to be patient. Most of you can’t afford to be.”

Padley is just plain wrong: there’s absolutely no reason why everyday investors can’t play the long game; moreover, there’s every reason why they should. Leithner & Company’s shareholders certainly do; no doubt other people do so, too.

What, then, does Padley suggest? “There is no Warren Buffett Way … There is only picking stocks that go up in price and to do that you would be well advised to rely on you, just you. With your understanding, your time horizons, your risk profile and your expectations. Not Warren’s.” Is this serious advice? In Graham’s words, “picking stocks” is NOT investment: it “isn’t “an operation which, on thorough analysis, offers safety of principal and a satisfactory return.”

Graham adds: “we can go further and assert that in an astonishingly large proportion of the trading in common stocks, those engaged therein don’t appear to know – in polite terms – one part of their anatomy from another.”

Finally, Padley’s insistence (“there is only picking stocks that go up in price”) is indistinguishable from the tongue-in-cheek “counsel” which the American humorist, Will Rogers, offered in the Roaring 20s. “Don’t gamble!” he exorted. Instead, “take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don’t go up, don’t buy it.”

Rogers’ quip is humorous; Padley’s claim is laughable.

Conclusions and Implications

Even his critics mostly agree: Warren Buffett is the most outstanding investor of his era. Can everyday investors emulate him? His view is emphatic; hence critics ignore it: “if you follow the behavioural and business principles that (Benjamin) Graham advocates … you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.)” 

Buffett’s greatest legacy is the broad applicability of his investment philosophy and Berkshire’s operations.

What does emulating him necessitate? Most fundamentally, as Graham detailed and Jason Zweig’s commentaries have elaborated, it’s a matter of character, disposition and temperament. More concretely, and as I’ve demonstrated, it also entails the development of a portfolio that comprises at least 25% but no more than 75% cash, bills, bonds and equivalents, and at least 25% but no more than 75% listed stocks. Which stocks? Berkshire’s inclination has long been clear: major, well-established entities in vital industries which possess long track records of profitability and whose shares sell at a discount to their value.

On a comparatively microscopic scale, that’s something that many investors, if they devote sufficient time and effort to the task, can do. Yet emulating Buffett hardly guarantees that you’ll match Berkshire’s results.

You almost certainly won’t come remotely close to its returns during the 1970s and 1980s (unless you take crazy risks, which as a student of Buffett and Graham you won’t, and are unimaginably lucky). Nor, as Buffett has cautioned repeatedly over the years, will Berkshire’s future results revisit its returns of those years. And you probably won’t match its results since the turn of the century.

Yet investors who adopt Buffett’s mindset and approach will likely generate reasonable results – and can aspire to those such as Berkshire’s since 2000.

Recall that Ben Graham defined “investment” as an operation that, after thorough analysis, promises both safety of principal and a satisfactory return. If it’s not an investment, it’s a speculation – and most speculators lose. Berkshire’s results since 2000 set a very high bar; therefore few investors will achieve them. Clearly, however, they’re far more realistic than Berkshire’s CAGRs from the 1970s to the 1990s.

Leithner & Company provides an Australian example: since 1999 its results vis-à-vis the All Ordinaries Accumulation Index have resembled Berkshire’s relative to the S&P 500’s total returns (see our website for details).

Leithner & Company and its shareholders exemplify another crucial reality: investors who emulate Buffett are a small minority; they differ fundamentally and irreconcilably from most other investors including the typical one. That’s principally because value investors think hard and research carefully before they act. In diametric contrast, most other “investors” (“speculators” is more apt) buy stocks impulsively – and arguably irrationally.

New research by Toomas Laarits and Jeffrey Wurgler, finance professors at New York University’s Stern School of Business, concludes that the median investor is attracted to a stock because it’s in the news; moreover, he spends astoundingly little time – just six minutes! – “researching” it before buying it. This “investor” devotes most of this “research” to the perusal of a chart of its performance—and often just the current day’s trading session (see “The Research Behavior of Individual Investors,” 20 March 2025).

If Laarits’ and Wurgler’s startling conclusions are correct, then the typical “investor” isn’t an investor at all: he doesn’t remotely resemble anything that Graham and Buffett would recognise as such.

According to The Wall Street Journal (“Guess How Much Time Many Investors Spend on Researching Stock Buys?” 3 May 2025), “the new research shows how far … individuals deviate from the assumption that economists make about investors behaving rationally.” Laarits and Wurgler estimate that, before he buys a stock, the median individual devotes just 14% of his “research” time – that’s a mere 50 seconds! – to the “analysis” of the company’s earnings, dividends and other fundamentals.

Terrance Odean, professor of finance at the Haas School of Business at the University of California, Berkeley, who since the 1990s has studied the behaviour of these individuals, states the obvious: it takes FAR longer than six minutes to research a stock; the “research” of the average “investor” is thus a total sham.

Not surprisingly, and as Odean’s research has detailed, the average “investor” (who’s actually a speculator) typically loses money.

A big reason is that these “investors” tend to buy topical stocks – and “hot” stocks are usually overpriced. Nardin Baker, a co-author of several academic studies which show that faddish stocks in the news typically underperform, told WSJ: “stocks that perform the best are often so boring and uninteresting that few if any Wall Street analysts or journalists are drawn to write about them.” In contrast, “investors end up paying a premium for stocks with exciting stories.”

One crucial question remains. You likely possess the brains to emulate Buffett, but may lack the disposition – and, apparently like the median “investor,” be unwilling to devote the required time and effort to its cultivation. Among the people who choose to emulate Buffett, the energy expended certainly won’t guarantee results; moreover, more likely than not they’ll generate medium-term returns which fail to match the S&P 500 Index. So why not just buy a low-cost index fund and spare yourself the time, effort and disappointment? The answer to this question has three prongs.

First, if you invest in a low-cost index fund and hold it continuously for a given period, your return will be very close to its benchmark (i.e., the benchmark’s return net of the index fund’s fees). But that’s not what the typical “investor” – who’s a speculator – obtains. The purchaser of an index fund and his counterpart in an actively-managed fund typically don’t buy low, hold for the long term and eventually sell high: instead, they tend to buy high, panic when the market plummets and sell low (see, for example, Mark LaMonica, “How to earn 1.7% more a year than the average investor,” Morningstar, 15 August 2024 and Utpal Bhattacharya, et al., “The Dark Side of ETFs”).

“Most investment funds,” Jason Zweig adds, “operate under a curse that economists call ‘pro-cyclicality.’ After a fund racks up a streak of good returns, investors throw money at the fund, forcing its managers to put the new cash to work in a market that is likely becoming overpriced. That hinders future performance. Then, when returns falter in a falling market, investors yank their money out, forcing the fund managers to sell just as bargains are becoming abundant. The fund’s own investors make its performance worse, intensifying the market’s ups and downs.”

In short, index funds don’t magically solve your investment problems; indeed, if you don’t mend your ways they may exacerbate them. Whether you use “passive” vehicles such as index funds, or an actively-managed fund, etc., you require the disposition of an intelligent investor no less than the investor who manages her own investments.

You can’t, in other words, outsource your virtues; in this most fundamental sense, there’s simply no such thing as “passive investment.”

Why not just buy a low-cost index fund and spare yourself the time and effort it takes to emulate Buffett, as well as the disappointment that you likely won’t match Berkshire’s results? The second reason is that intelligent investing develops the virtues of courage, curiosity, discipline, humility, independence, patience and scepticism. As an investor develops them she becomes intelligent – and thereby becomes, not just in investing but also in matters other than and far removed from it, a wiser person. If she doesn’t acquire them as an investor, she must do so via other means, e.g., as a parent, spouse, etc.

Intelligence, Graham said, has nothing to do with IQ or advanced degrees (see in particular Does high IQ make a better investor? 11 November 2020). He would’ve affirmed George Orwell’s astute observation: “one has to belong to the intelligentsia to believe (certain) things; no ordinary man could be such a fool.”

Instead, throughout The Intelligent Investor Graham used the word “intelligent” in “its common and dictionary sense as meaning ‘endowed with the capacity for knowledge and understanding.’ It will not be taken to mean … gifted with unusual foresight or insight. Actually the intelligence here presupposed is a trait more of the character than the brain.”

Becoming an intelligent investor probably won’t make you as wise as Buffett, but that’s hardly the point. The point is: how much wiser will the ethos of an intelligent investor make you than you would’ve been otherwise? (See in particular Jason Zweig, “The Seven Virtues of Great Investors,” 4 April 2023.)

Thirdly, intelligent investors, as Graham detailed, possess significant advantages which large financial institutions lack. Alas, few investors exploit this edge – and if they heed Buffett’s critics they’ll squander it.

“Investing like Warren Buffett,” asserts Capolingua, “might be one of the worst decisions an average investor can make.” Huge claims require overwhelming evidence; yet Capolingua’s is scant and biased, and his inferences are invalid. I’ve assessed Buffett’s words and studied Berkshire’s financial statements; on these bases, it’s clear that the polar opposite is much closer to the truth: ethically and materially, emulating Buffett is one of the best decisions you can take – and heeding his critics is one of the worst.

In conclusion, if you’re willing to expend the time and effort, not only can you emulate Buffett: to the extent that you’ve cultivated the virtues which underpin intelligent investing, you might already resemble him more than you realise.

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