Why he's Warren Buffett - and you're not

There's a big difference between Warren Buffett and you - besides his fortune. So don't try to follow this leader too closely.

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By Pat Dorsey, director of equity research for Morningstar

If investing were as simple as mimicking Warren Buffett, then all you'd have to do to retire rich would be to download a free copy of the Berkshire Hathaway annual shareholder letter and shadow the Oracle's moves.

Given that you're reading this article instead of relaxing at your seaside villa, it's clear copying Buffett is no easy task. So as you marvel at the Sage, keep the following in mind:

Warren can strike deals you can't.

Buffett's reputation and Berkshire's financial heft are enormous advantages that regular investors simply don't share. Take his recent investment in Goldman Sachs (GS, Fortune 500). It was made in preferred stock that was offered only to Berkshire and pays a 10% fixed yield.

That's twice what Uncle Sam is initially earning on the preferred shares it got from Goldman in exchange for injecting capital into the bank. But chalk that up to the Buffett premium. Firms want the Oracle to invest in them for his seal of approval.

Berkshire's purchase of Constellation Energy offers a great example. Constellation's shares had fallen 75% from their highs because the market was worried about the financial health of the company's energy-trading operations.

If you or I bought the stock at that level, we would have been making a bet that Constellation would pull through. But we would not have been able to affect the odds. However, Berkshire's financial strength and Buffett's name assured Constellation's survival, making the investment more valuable as soon as Warren bought the company.

Warren is smarter than you are.

Many casual observers assume that Buffett simply buys great companies and hangs on to them. Simple, right? But the real key to Buffett's success is far more complicated.

Buffett has created enormous value for Berkshire by buying all kinds of securities, from common stock and preferred shares to currencies, distressed debt and options.

He has also made money through merger arbitrage and fixed-income arbitrage. These are all areas that only the most sophisticated investor should dabble in.

Why mimic Warren when you can hire him?

Your best bet for benefiting from Buffett's wisdom is the most obvious: Buy Berkshire Hathaway (BRK.B) stock.

It's really an investment company. But unlike a fund, it doesn't charge annual management fees. Buffett has deployed a lot of cash into attractive deals lately, which should add value for years to come. To top of page

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