Are There Too Many Buffett Disciples?

Morningstar’s Jeffrey Ptak shared some very insightful tweets from Berkshire Hathaway’s annual meeting this weekend:

image image image

It’s estimated that more than 40,000 people pack the CenturyLink arena in Omaha to hear what Buffett and Munger have to say at the Woodstock of Capitalism. Every year I read about more and more value investing groups and panels at this event that bring together some of the brightest minds in finance to share ideas and their process.

It makes you wonder how many portfolio managers and analysts from hedge funds, mutual funds, institutional pools of capital and wealthy individual investors have grown up devouring everything that’s been said or written by or about Buffett and Munger over the years. I know I certainly have.

This brings up an interesting question for investors to consider: Should you worry about your competition for investment ideas? Does it make sense to pay attention to what the other players in your investment universe are doing?

I generally think that the majority of investors are better served by trying to create a competitive advantage over their own emotions rather than worrying about what others around them are doing. But you still have to be aware of the fact that other investors can distort the market, asset class, funds or companies that you’re investing in. The ease with which investors can access different products and research these days means more weak hands will be entering some of the more well-known, previously less traveled roads for investment ideas.

This isn’t restricted to value investing either. There’s a growing chorus of people who are worried about the impact of the growth seen in index funds and ETFs, as well. Some of these worries could prove to be grounded in reality while others are probably overblown. The truth is that no one really knows how the advances in research and an increased understanding of market history will affect any strategy going forward. It’s difficult to quantify these things and it could take years or decades to truly understand the implications.

My guess is that it will probably mean more volatility in certain areas of the market at times, but also fewer opportunities for low hanging fruit.

I’m not suggesting anyone should abandon an investment process or strategy simply because others have discovered it. I think it’s great that more investors are wising up and following the historical evidence. It’s also one thing to study an investment philosophy but something else entirely to actually implement it successfully.

I do think it’s worth paying attention to the fact that there is now a greater amount of competition for good ideas than ever. Investors are getting smarter all the time. Of course, this doesn’t mean people have all the sudden developed a never-ending supply of self-awareness and emotional intelligence.  I still think those attributes will always remain any investor’s biggest advantage over others and their own biases.

Follow Jeffrey on Twitter:
@syouth1

Further Reading:
Buffett’s Performance By Decade
What You Can’t Learn From Your Heroes

 

Download PDF

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

What's been said:

Discussions found on the web
    • Ben commented on May 03

      Yup that’s valid. As Buffett himself has said, size is the enemy of outperformance.

  1. Scott Boone commented on May 04

    BRK is a classic example of the efficient marketplace. When people see that a particular strategy works, they will crowd the space and level the playing field. No doubt Mr. Buffet has been a smart investor who also seems to have great emotional control, but I suspect he’d admit that, if he were starting again today, his results would not be the same. I say this, of course, with maximum sour grapes for not having bought BRK shares 25 years ago!

    • Ben commented on May 04

      I’d agree with that. The competition for good ideas is much higher than it was back in the day. Although if he were starting out today it would be with a much smaller capital base so he could be more active and fish around in small caps. Buffett is the kind of freakish mind that could succeed during any time frame. It’s just that I think you’re right that it would be much hard to pull of the amount of outperformance that he got in today’s environment.