If You Want to Invest Like Warren Buffett, Here’s How to Do It
If you want to invest using the same principles as Berkshire Hathaway chairman Warren Buffett, there’s no shortage of articles offering advice on how to do it. Few investors, however, have gotten the opportunity to emulate the Oracle of Omaha the way Tracy Britt Cool has. As one of Buffett’s top lieutenants, Britt Cool became chief executive at Berkshire Holding Pampered Chef and garnered enough of a reputation as a quick-thinking manager that Buffett called her “the fireman” in an interview with the Wall Street Journal. In 2020, Britt Cool left Berkshire to cofound her own investing firm, Kanbrick, where she has continued to invest in and optimize businesses. Britt Cool’s approach to investing echoes Buffett’s in some key ways, but differs in others. Here’s how she breaks down the similarities and differences.
Emulating a ‘remarkable organization’
“Berkshire is a remarkable organization that has been built over decades to support founders, families and for people who do business with them,” Britt Cool says. Here are three things she says she learned at Berkshire and took with her to the firm she founded.
- Thinking long-term – “Berkshire has permanent capital,” Britt Cool says, meaning that it doesn’t have to return money to investors on a particular timetable. “That’s very valuable. You can invest in companies. You can make investments in people and in new businesses. As an organization, that can be really powerful.” A focus on the long-term allows investors like Britt Cool and Buffett to take calculated risks and harness the power of compounding interest. Because they don’t chase short-term profits, they’re never forced to sell an investment they believe can continue to improve or buy one that would introduce too much volatility into their portfolios.
- Building relationships with businesses – Buffett is famous for homing in on businesses run by people he sees as great managers, and Britt Cool is no different. “There’s a growing group of founders and families who really care about where their company ends up. And they want strong partners,” Britt Cool says. “If you build an organization that has respect for them, you can build something really unique and special.”
- A focus on quality companies – Like her mentor, Britt Cool focuses on businesses that can stand up to rival firms. “The last [similarity] I’d say is just the value of finding high-quality businesses with competitive advantages,” she says. “These businesses compound and they have a long runway.” A company can look extremely attractive now, but if it can’t fend off challenges from competitors, the thinking goes, it’s unlikely to produce sustainable high returns over time.
Where Britt Cool is forging her own path
Despite the similarities in approach, Britt Cool says she isn’t trying to build a mini Berkshire. Here are biggest distinctions she draws between her approach and Buffett’s.
- Size – “Warren would say, ‘Size is not your friend.’ The bigger you get, the harder it is to deliver the same returns,” Britt Cool says. Nevertheless, due to the size of his portfolio, Buffett tends to acquire jumbo-sized businesses. Kanbrick, meanwhile, focuses on small to midsize companies where Britt Cool says she and her team can add the most value. “We focus on companies that are too small for Berkshire,” she says.
- A hands-on approach – Buffett likes to delegate, letting people he thinks are great managers run the show. The hands-off approach “works really well when you have a really strong CEO, when the company’s very established and the industry isn’t changing all that much,” Britt Cool says. Execs at smaller firms, however, are often looking for more support, she adds. “They want to have a sort of partner in their thinking that can help them.”
Analyst comment
Neutral news.
As an analyst, the market is likely to see increased interest in investing like Warren Buffett. Investors may attempt to emulate his long-term approach, focus on quality companies, and build relationships with businesses. However, the market may also see a shift towards smaller companies, as investors like Tracy Britt Cool look for opportunities that are too small for Berkshire Hathaway. Retail investors may be advised to carefully consider their own investment strategies and seek support from partners or advisors.
