Warren Buffett Style Portfolio

Warren Buffett is one of the most famous investors of all time for good reason. This blog (and the rest of the internet) has numerous articles devoted to the Oracle of Omaha and his career as an investor that span the lifetime of some people.

Unfortunately, I’m not here today to spoil Buffett again. This time around, I’ve taken some of Warren’s investment philosophies and actively translated them into a portfolio of 10 high quality stocks.

I think even Buffett himself would be happy to own this portfolio!

Vintage Value Investing Portfolio

Allow me to introduce the Vintage Value Investing Portfolio. As mentioned earlier, this is a value investing portfolio specifically designed to mimic Warren Buffett’s investment style.

Warren Buffett’s value investing principles are very different from his mentor Ben graham. Instead of buying companies at a high discount (like Graham), Warren developed his own investment method. This is known as a quality investment.

Here’s what Buffett looks for specifically when buying stocks in a company:

  • A business related to this is easy to understand
  • Consistent profit growth
  • High returns and margins (ROIC, ROA, ROE, etc.)
  • An economical moat
  • Competent management
  • A fair price

Notice the last ball: “A fair price”. A fair price is not necessarily a bargain price. This is key when investing like Buffett. Instead of buying bargain stocks, he buys stocks that trade at fair value and simply has them pieced together over years or even decades.

Furthermore, it is not good enough that these companies have performed well in the past. As we all know, past performance is never an indication of future returns.

In this portfolio, I have identified economic trenches and tailwinds for every company. Economic ditches protect the company from competition, while the tailwind drives the company towards future success.

As-built characteristics and valuation method

To find these high quality companies, I looked for stocks that had the following characteristics:

  • Consistently increasing annual equity per share (or book value)
  • Above-average return on equity (ROE) over long periods of time (> 15%)
  • A return on income of more than 3%

Any companies that we want to own for an extended period of time must be those that can provide long-term growth for shareholders. This compounding only comes from a company that can predictably grow its assets faster than its liabilities without diluting shareholder value.

Reverse Convertible

The valuation method I used to value the stocks in this portfolio is the equity bond method. I’ve already written an article explaining this method in detail Listen.

Here is the basic premise of the equity bond method:

By looking at the earnings return on a stock in the same way as we do the return on a bond, we are now buying the stock at a fair price and allowing the company to reinvest those profits year after year to increase our returns.

The main difference between the Reverse Convertible and a Regular Bond is that the longer you hold the Reverse Convertible, the more value it grows, while the Regular Bond has a fixed rate of return over time.

That’s why we’ve screened and selected stocks with high ROE and solid income returns. These companies will continue to add high interest rates to our investments over the years.

Accidentally hit the market

When I built this portfolio, I had no idea what its performance would be, let alone if it beat the market. Strangely, it clearly outperformed the S&P 500.

Brief Disclaimer: Evidence of past performance means next to nothing. So take these results with a giant grain of salt. Anyone can easily show you how great a portfolio would have been in the past, but few can show you one that will do well in the future (including myself).

Here is the 10 year performance of the VVI portfolio versus the S&P 500 with a capital investment of $ 10,000.

Source: Portfolio Visualizer

Source: Portfolio Visualizer

What’s even more impressive is that the portfolio has also not seen negative returns over the past decade.

Source: Portfolio Visualizer

To be clear, I’m not showing these stats just to brag. The S&P 500 still proved to be an amazing investment over the past decade. This just goes to show that buying a select few high quality stocks can really increase your annual returns and Reduce your risk by a significant amount.

Use this portfolio

As you can see from the charts above, you only had to buy and hold these stocks for 10 years to get close to 20% annual return. What I can’t simulate is How An investor would use this portfolio during this time.

Portfolio strategies

By buying, selling, weighting or rebalancing individually, you could theoretically achieve a higher annual return. However, unnecessary tinkering in the portfolio can also move you to lower returns.

There are several methods of portfolio management. Some investors prefer the average dollar cost method, while others prefer to pile up a lump sum and invest all at once.

Additionally, some investors prefer equally weighted portfolios while others prefer to weigh by market capitalization. Some (like Buffett) don’t weigh or balance portfolios at all!

Do your own thing

I can’t tell you how to manage your portfolio like I can’t tell you how to live your life. It is up to you to manage.

All you need to remember is this: if you decide to buy a stock, make sure you are buying at least a fair price. Overpaying for a stock is the surefire way to get poor returns.

Who this portfolio is for

The VVI portfolio is designed for investors looking for a simple portfolio that they can easily keep up with while ensuring that they are getting a wonderful company at a fair price.

This portfolio is not designed for “trading”. It’s not even designed for annual profit. This portfolio is curated for long-term compounding.

Opinion: This portfolio would be ideal for a retirement account like a Roth IRA.

I also designed the portfolio to include companies that are easy to understand. Most of these companies are very well known. It is very likely that you are a customer of these companies yourself!

A portfolio that typically has more than 10-12 positions does not offer greater diversification. Any more than that, and you run the risk of not being able to keep up with all of your holdings.

Keeping the portfolio at 10 stocks ensures that the investor gets the benefits of diversity and focus. It’s the happy medium between the two of them.

The breakdown of stocks by sector / branch is shown here for reference. The aim was to enable portfolio diversification with a number of companies in different sectors / industries rather than adding additional holdings.

Source: Portfolio Visualizer

After all, every stock was chosen because (at the time of writing) it is being sold at a fair price. For each stock, the valuation method is shown to show (if held long-term) the forecast annualized returns.

Get the portfolio

The breakdown of the portfolio can be found in the PDF below. I wanted to make this portfolio available for free so that investors could see the power of compounding by picking a few good quality stocks, just like Buffett did.

Click here for the Vintage Value Investing Portfolio

I will also include the statistics report courtesy of Portfolio visualizer. The report goes into great detail on portfolio performance in the past, asset allocation, drawdowns and much more.

Click here to view the Vintage Value Investing Portfolio Statistics Report

M1 finance

Last but not least, you can get this portfolio for free by signing up with our partner. M1 finance. I already wrote a review on brokerage that you can find Here.

In conclusion, M1 Finance is a free brokerage company that allows you to invest in companies that use fractional shares. You can divide your portfolio into a “pie” and easily determine your allocation and weighting. There is a great buy and hold investment broker that this portfolio is geared towards.

All you have to do to get the portfolio is log into M1 Finance and add the portfolio to your account. As simple as that.

Click here for the M1 Finance VVI portfolio

Conclusion and updates

Hope you enjoyed this article as well as the Vintage Value Investing Portfolio. I plan to update the performance of this portfolio on a quarterly basis. The links for the updates will be listed below as they arrive.

Have fun investing!

Disclaimer of liability

None of the authors or contributors to VVI are registered investment advisers, brokers / dealers, securities brokers, or financial planners. The information in this article is for informational and educational purposes only.

The information is not intended as financial advice or any other advice and does not constitute financial advice. It is of a general nature and not specific to you. Before using the information in this article to make an investment decision, you should seek advice from a qualified and registered securities professional and conduct your own due diligence.

None of the information in this article is intended as investment advice, an offer or solicitation of an offer to buy or sell, or a recommendation, endorsement, or sponsorship of any securities, company, or fund. The company is not responsible for any investment decisions you make. You are responsible for your own investment research and your investment decisions.


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