The Warren Buffett Investment Strategy

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The Warren Buffett Investment Strategy: If One Warren Buffett Can Make You Super Rich, How Much Money Will You Make With 10?

By Dr. Mark Skousen, Chairman, Investment U
Thursday, February 16, 2006: Issue #512

In the early 1970s, a California orange grower named Franklin Booth decided to invest $1 million in a little-known company called Berkshire Hathaway, managed by 30-year-old Warren Buffett. Today, Franklin Booth is worth $1.4 billion and listed as one of Forbes’ 400 Richest People in America.

Academic economists say that if you beat the market, you’re either lucky or a liar. Well, Warren Buffett has beaten the market for 30 years and counting, picking dozens of stocks. Luck has little to do with it.

Using a business-valuation model, Buffett’s fund has achieved compounded annualized returns of over 22% since the early 1970s, making a lot of people rich besides Franklin Booth.

But with Warren Buffett now approaching 76 years of age (he was born in the Great Depression in 1930), mortality may be catching up with the irrepressible Mr. Market, and he may not be as successful. So, naturally, everyone is in hot pursuit of finding the next investment genius who can supersize your portfolio into the stratosphere.

Ken Kam, president of Marketocracy, has a better idea: Rather than trying to replicate the Warren Buffett Investment Strategy, instead search the world for the top “Warren Buffetts” and have them choose stocks for you in a no-load fund called the Masters 100 Fund (MOFQX).

How To Find the Next Warren Buffett in Your Investment Strategy

Ken searches the Internet by asking individual investors from anywhere in the world to create their own virtual mutual fund, and buy and sell stocks that trade on U.S. markets. The top 100 performers are selected as the 100 Masters, who are rewarded financially for being on the list.

So far, more than 50,000 individuals have tried their hand at beating the market. Few have succeeded. But maybe you are the one.

Did I beat the market? You bet!

Yes, I’ve tried it. Last year, I created my own virtual fund and for two months, my fund outperformed the market and the Masters 100 Fund. However, I was always “out of compliance” with all the rules and regulations imposed on funds (I often had more than 25% in a single stock, which violated the rules), and was dropped from the competition. Ah, the risks and rewards of being a maverick investor!

Through modern technology, Ken monitors each fund, and then picks out the best stock pickers for both the long term and short term. All must be in compliance with the rules. Using an advanced proprietary formula, Ken has created the Masters 100 Fund and buys and sells stocks based on the abilities of these top stock pickers.

Ken changes the mix of top performers every month, so there’s quite a bit of turnover. Competition is fierce to stay on the top of the mountain.

The Masters 100 Fund Vs. the S&P 500: The Results Are In

How well has the Masters 100 Fund performed? Since its inception in November 2001, the fund is up 60.4%. That’s more than double the 25% the S&P 500 Index returned over the same period.

However, there were periods where the Masters 100 Fund underperformed the market, especially in the first half of 2004. It forced Ken to reevaluate his model and investment strategy. He found that by selecting the top 10 Masters, his fund could do better a lot better. So now, the portfolio of the Masters 100 Fund is determined by the stock choices of his top 10 Masters.

Since making this change in late April 2005, the Masters 100 Fund is beating the market by greater margins than before – MOFQX is up 35.8%, while the S&P is up 12.2%.

Even more amazing, the Masters 100 Fund has outperformed every sector by substantial margins. No matter what sector – energy, financials, health care, utilities or industrials – the top 10 Masters do a better job than the market in selecting stocks. See the chart below.

Right now, the Masters 100 Fund is overweighted in the following sectors:

Consumer Discretionary: 15% vs. 10%
Energy: 24% vs. 10%
Health Care: 15% vs. 13%
Materials: 9% vs. 3%

My Recommendation:

I think it’s time to look beyond the Warren Buffett investment strategyand consider the Masters 100 Fund (MOFQX).

And yes, I’m an investor.

Good trading, AEIOU,

Mark

Today’s Investment U Cribsheet

Want to try your hand at stock investing? Go to http://www.marketocracy.com to see how to run a $1 million virtual portfolio in a simulated trading environment and see how well you measure up against the S&P!
While we’re on the mutual fund subject, take a look back at Investment U # 484, Socially Responsible Investing: Vice Trumps Virtue On Wall Street. Here we looked at how socially responsible funds compare to funds that invest in “vice” stocks.