The Warren Buffett ETF Portfolio

Oliver Ludwig, Moderator

Managing Editor, IndexUniverse.com, IndexUniverse

Larry Swedroe, Panelist

Managing Principal & Director of Research, Buckingham Family of Financial Services & the BAM Alliance

Larry SwedroeManaging Principal & Director of Research Buckingham Family of Financial Services & the BAM Alliance

Oliver LudwigModerator Managing Editor

ETF.com

Invest like BuffetLarry SwedroeManaging Principal & Director of Research Buckingham Family of Financial Services & the BAM Alliance

Warren Buffet’s Advice

Should you use active or passive mutual funds?

Should you pay attention to market forecasts?

Should you try to engage in market timing?

Active vs. Passive Investing

“Over the 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.”

~ 2004 Berkshire Hathaway Chairman’s Letter

Three Primary Causes

High costsDecisions based on

tips and fadsA start-and-stop

approach

Value of Forecasts

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

~1992 Berkshire Hathaway Chairman’s Letter

Before You Act on a Forecast

Is Warren Buffett acting on this expert’s opinion?

If he isn’t, should I be doing so?

What do I know that Buffett doesn’t?

If I make this change and I am right, what impact will it have on my life?

What impact will it have if I am wrong?

Have I been wrong before?

Buffet on Market Timing

“Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”

~ 1991 Berkshire Hathaway Chairman’s Letter

Investors Idolize Buffest But don’t follow his advice

Buffest Against Market Timing Buy when other are fearful, sell when they are greedy

Don’t sell when valuations are low

Buffest buys because expected returns are high

“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

~2008 Berkshire Hathaway Chairman’s Letter

You Can Invest Like Buffett Have an Asset Allocation Plan and Rebalance

Have discipline

Adhere to your investment plan

Ignore your emotions

Rebalance regularly

The Loser’s Game

The Winner’s Game

Buy high

Buy low

Sell low

Sell high

You Can Invest Like Buffett Understand How to Think About Bad News

You Can Invest Like Buffett

How to think about bad news

Markets should continue to fall only if future news is worse than expected

If the news is no worse than expected, you should expect to earn high returns because valuations had been low

If the news is not as bad as expected, the perception of risk will fall, prices should rise and you should expect to earn high returns

You Can Invest Like Buffett

Surprises

What matters are surprises

If something is a surprise, by definition is cannot be forecasted

Happy surprised are as likely as unhappy surprises

Avoid Stage-One Thinking

Avoid Stage-One Thinking Will governments/central banks stand idly by, allowing the crisis

to worsen?

Do I really know something that the market doesn’t know?

Doesn’t the market’s current price already reflect the news I am reacting to?

Do I want to sell when valuation are low and expected returns are high?

When I reacted in the past to such events, how did it turn out?

If I sell during a crisis, how will I know when it is safe to buy again?

Buffest on Temperament

“Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

~Businessweek

Have a Plan and Stick to It

Have a Plan and Stick to It

Resist acting on forecasts

Resist trying to time the market

Give up the hope of outperforming by investing with the latest hot fund manager

Hit the mute button if you cannot resist watching financial media

Be a “passive” investor

Invest in Highly Profitable Companies

Buffett’s Alpha

Buffett’s returns were boosted through leverage and cheap financing provided by his companies

He buys cheap, “high quality” companies

He stuck with his strategy

Want to Invest Like Buffett?

Use a passive, evidence-based investment strategy

Tune out all the economic and market forecasts

Don’t try to time the movements of markets

Develop a written IPS based on your need, ability and willingness to take risk

Control your emotions in order to maintain discipline

Review your plan whenever the underlying assumptions change

Thank You.

Questions?

Larry SwedroeManaging Principal & Director of Research Buckingham Family of Financial Services & the BAM Alliance

Oliver LudwigModerator Managing Editor

ETF.com