How to invest like Warren Buffett

stig-brodersenBy Nicolai Bang from www.finans.dk

*This interview with Stig Brodersen was originally published 27 June in Danish here 

 

It requires discipline, time, and composure to invest like the 85-year-old billionaire and major investor Warren Buffett. But, even though you might not get to build a fortune and become world’s third richest person, you should strive to copy him anyway.

At least according to Stig Brodersen. He is behind the world’s largest podcast on equity investment, and he and his co-host Preston Pysh have written the Warren Buffett Accounting Book, which has sold just over 20,000 copies. A book describing the billionaire’s investment strategy in detail.

“I’ve adopted his strategy 100%. Buffett’s simple way of investing and his ability to be rational when everyone else is irrational, it’s all incredibly inspiring,” says Stig Brodersen.

And it’s not hard to invest like Warren Buffett, unlike what most people probably imagine. At least not in theory. His method is relatively simple and based on fundamental assumptions. Principles that most will be able to learn to abide by. On the other hand, it requires that you respect the rules of the strategy and that can be difficult for many investors.

According to Stig Brodersen, the first thing you must learn, before plunging into investing like Buffett, is understanding what to invest in.

“A share is part of a business. So many people don’t understand this. If you own a share in Maersk, you own a small portion of a container ship, a small portion of an oil platform, a small part of everything. In theory, it is no difference between to buying a single share and buying the entire company. You need to understand this in order to understand the business,” he says and points out why it is important.

“What happened during the financial crisis? Many companies’ value was halved. If you understood the business, you would see that this did not make any sense. Many companies still operated in the same way, and generated the same cash flow. How could these companies all of a sudden be worth only half of what they used to? Perhaps the shares were overvalued before, or maybe they were undervalued after – at least it demonstrates the value of rational thinking, especially when everyone else is doing the opposite. ”

Warren Buffett acted rationally during the financial crisis and used the declining stock prices to buy into healthy, robust companies that, despite the crisis, kept moving at roughly the same pace. Actually, such opportunities are exactly what Warren Buffett is always on the lookout for. This is also why he considers patience as one of the most important features when investing in shares.

However, he wouldn’t have been able to do what he did if he hadn’t understood the companies. If he hadn’t read the accounts and talked with those involved.

“Very few investors actually take the time to read the annual reports of the companies they invest in. Nevertheless, they should. It doesn’t matter whether the stock price has risen from 40 to 60, if the share is still overpriced relative to the company’s value. Buffett only looks at what the company is worth, “says Stig Brodersen.

When Stig Brodersen has read and understood the financial statements, he tries to get to talk the company’s clients, employees, or others who have special knowledge. Then he investigates whether the company has a special competitive advantage. It’s time consuming, but necessary and totally worth it.

“Why spend three days choosing the cheapest phone plan if you don’t want to spend three months placing all the money you’ve earned over the last 10 year in good, solid investments?”

Just like Warren Buffett, he is also looking at whether the lifespan of the company’s product is durable. Will the internet at some point replace this product? When Warren Buffett bought gum manufacturer Wrigley’s, he did so based on the logic that the Internet probably wouldn’t change the way that we chew gum.

Laying the groundwork is time consuming, but, in return, you only have to purchase very few shares.

“When I finally buy stocks, I intend to keep them for many years. If I buy two different stocks in one year, it’s more than enough. Warren Buffett has once said that if you’ve bought more than 20 stocks in your life, you’ve been too impatient. He obviously has done so himself, but the lesson is that you have to hold on to your stock for a long time. ”

Suppose that the exchange were to close for 5-10 years. Would you then still buy the stock?

“It shouldn’t matter, because as a shareholder you own a part of a real business which is long-lasting. It’s not just an electronic piece of paper with a price that fluctuates up and down,” Stig Brodersen explains.

While it may be tempting to let others manage your investments, Stig Brodersen considers this a big mistake. You have to take care of your investments yourself.

“Nobody cares as much about your money as you do. Banks will only offer you a generic investment service based on a superficial survey about your risk preferences. Forget it. You need to find out for yourself what the right thing is for you. Moreover, you have to train yourself to figure it out. Team up with people who can help you. I also surround myself with many good people who help me. ”

Warren Buffett’s company Berkshire Hathaway owns shares in 49 different companies, including large holdings in Kraft Heinz, Wells Fargo, and Coca-Cola. Therefore, if you want to invest according to the billionaire’s philosophy, but don’t want to spend time on it, you can just consider investing in Berkshire Hathaway.

Stig Brodersen does so himself.

2018-02-23T23:17:58+00:00

2 Comments

  1. Chris @ Sleepy Capital
    Chris @ Sleepy Capital June 28, 2016 at 8:34 pm

    Stig,

    Congratulations on the great article and very well said throughout. I agree with you that it’s not hard to learn how to value invest like Warren Buffett, but it’s difficult to have his temperament and patience in times of crisis, I think this is the biggest difference between Buffett and all of us. Being able to think rationally is very important and being able to do so when the crowd is being irrational is essential. Staying true to Buffett’s filters and blocking out the noise will help lead us to investment success, and your advice here adheres to those filters. Your interview was very insightful and has some great advice. Thank you for sharing!

    I’ve been following your podcast over the last year and have really enjoyed being a part of the community. Thanks again.

    Best,
    Chris @ Sleepy Capital

    • Stig
      Stig June 29, 2016 at 7:40 am

      Thank you Chris!

      I remember when I first started learning about Warren Buffett and thinking… why is everyone not doing this? I think you said it best!

      -Stig

Comments are closed.

stig-brodersen1

By Nicolai Bang from www.finans.dk

*This interview with Stig Brodersen was originally published 22 June in Danish here 

 

Stig Brodersen gave up an annual salary of 1 million DKK to seek freedom. He found it through a podcast, now the world’s most downloaded, on equity investment.

Americans often have a hard time pronouncing his name. Stig is pronounced hard like the last syllable of ”elastic”. And the pressure on the soft ‘d’ in Brodersen sounds so hard that you can almost hit someone with it.

But at least they know his name.

He is being recognized on the street in Omaha, USA, and has several real followers on Twitter, more than the singer Burhan G and Danish Prime Minister Lars Løkke Rasmussen; yet no one recognizes him when he goes grocery shopping in his hometown Aarhus.

In less than two years, the 31-year-old Stig Brodersen with his American co-host, Preston Pysh, created the world’s most downloaded podcast on equity investment and sold more than 30,000 books on the subject. It’s just gone unnoticed in Denmark, where less than 1 percent of the listeners come from. The lack of attention suits Stig Brodersen fine.

“I have actually no need to be recognized in Denmark. If you’re recognized in Denmark, it is very personal. In the US, on the other hand, people don’t care about where I live or what my wife does for a living. They just want to hear my opinion on Warren Buffett’s latest investment, “says Stig Brodersen as “Investor“ meets him at the Business Academy in Aarhus, where he has taught for almost three years alongside his podcast career.

He seems more interested in getting to know the journalist than talking about himself. Just like when he is recording his podcast show sucking knowledge out of guests such as the world-famous value investor Guy Spier, author Jack Schwager or the 24-year-old multimillionaire Nathan Latka. All done from his apartment via Skype.

So far, they have reached 90 episodes of The Investors Podcast. The concept is simple: In each section, the hosts study a billionaire, read their books, scrutinize their philosophies, and interview relevant experts.

The fact that Stig Brodersen mentions his interest in Warren Buffett, arguably the world’s most successful investor, is by no means random. But before we move to Omaha, Buffett’s hometown, we must pass by Søvind north of Horsens and a hectic trading floor at Danske Commodities. Experiences that formed Stig Brodersen’s path toward life as a podcast host.

Although there is ample room for grand gestures in Søvind north of Horsens, where Stig Brodersen grew up, it is not something people in the local community are known to exploit. Therefore, it was quite a contrast that greeted him when he immediately after his master degree in finance from the Business School in Aarhus landed a job at Danske Commodities.

Despite a starting salary of almost 1 million DKK, life in front of eight flashing screens never made him feel happy. He felt that the values he had carried with him from his childhood were taken from him.

“I didn’t like the trader lifestyle. I had no freedom. There was so much stress, so much I couldn’t control. When spending a large part of your time somewhere, you start to cultivate the same set of morals as others. Also, in a working environment with an enormous pressure, you don’t always make the best decisions. I could feel that it just wasn’t good for me, ” he says but does not want to elaborate out of consideration to his former employer.

The freedom and a stress-free lifestyle became a reality when Stig Brodersen resigned after 18 months and became acquainted with Warren Buffett and his investment company Berkshire Hathaway.

At Danske Commodities there were times where he made 200 trades in a day. Warren Buffett’s investment philosophy was quite the opposite. Patience, thoroughness, and moderation was key. This resonated strongly with Stig Brodersen, who has even adopted the 85-year-old billionaire’s philosophy of life.

“Warren Buffett only spends time with people he likes. So do I. That’s why I only employ people that I like. Even though I might find someone who is more qualified. Will it cost me money? Perhaps. But maybe I can achieve a higher sense of happiness instead. ”

He met his co-host Preston Pysh on a small online Warren Buffett forum, where virtually no other than the two of them posted. The Buffett mania later resulted in a book about the master’s investment strategies and eventually led to the launch of the podcast. The first month they had 5,000 downloads. Today, a year and nine months later, they tally between 15,000 and 20,000 downloads a day.

It was when Stig attended the annual Berkshire Hathaway meeting in Warren Buffett’s hometown of Omaha at the end of April that it dawned on him, how far they had come with the podcast. Around 100 listeners showed up to meet the two hosts.

One of them, a leader of a team of investment analysts from the Bank of England, did not conceal neither his own nor his colleagues’ enthusiasm.

“Despite the large amount of information and research that I see on a daily basis, the podcast manages to deliver high-quality information. Regardless of your level of knowledge, you can always learn something ” says Michele Bellabarba from London.

Not only does Stig Brodersen receive praise from top professionals in the investment industry. He was even recognized by strangers on the street while in the US.

“In Omaha, I was recognized by someone on the street who came up to me and asked if I was Stig. It was completely surreal. That would never happen in Denmark, “says Stig Brodersen.

The podcast has given him back the freedom that trader-life took from him. Although he has started many different projects – courses, acquisitions, investment advice – he no longer feels trapped or stressed.

“Today I woke up at 7.30, went for a run, had breakfast and relaxed for a bit. Then I worked from 10 to 11. Came out to the campus to do this interview. Later I have a short meeting and then I will go home and relax. If I work more than 40 hours per week, I have failed, “he explains.