When Others Are Greedy: How to Implement Buffett’s Playbook in Your Own Personal Portfolio

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Many investors may wonder if Warren Buffett is an alien from another planet, someone with a time machine or a crystal ball, or has found a way to conjure up some black magic to dominate the markets for such a long period of time. He's known as the "Oracle of Omaha" for a reason, with an incredible and innate ability to pick stocks that can outperform the market for long periods of time. But perhaps most importantly (and impressively), he's showcased some of the most notable patience among big money managers in the market, holding onto such positions as they soar rather than taking profits.

Quick Read

• Berkshire Hathaway (BRK-B) invested over $4B in Alphabet during the most recent quarter.

• Buffett sold significant Apple and Bank of America stakes in recent quarters while increasing cash holdings.

• Greg Abel will take over as Berkshire CEO in less than a month as Buffett turns 95.

• If you’re thinking about retiring or know someone who is, there are three quick questions causing many Americans to realize they can retire earlier than expected. take 5 minutes to learn more here

As you can tell, I'm a big fan. And I'm glad I was able to go to an annual meeting not that long ago, to see what all the buzz was about in person.

Now 95 and set to hand the reins to Berkshire Hathaway (NYSE:BRK-B) to Greg Abel in less than a month, he'll be passing the torch to a team he's been crafting and teaching for decades. For long-term investors who have relied on Buffett and his wisdom in picking stocks, they'll now be forced into a position where they'll be questioning whether Buffett is as good a teacher as he's been a lifelong investor.

Here's a few pieces of wisdom Buffett has touted over the years I think is more pertinent today than it's been in a long time.

Be Fearful When Others Are Greedy, and Greedy When Others Are Fearful

Image of Warren Buffett

Buffett's buys and sells on a quarterly basis, made public via closely-watched 13-F filings, tell a story that's perhaps more revealing than the rhetoric Buffett espouses in his annual letters or during interviews. And while his recent commentary on the market is what I'd call revealing, it's what he chooses to do each and every quarter I think is more interesting to watch.

This past quarter, the biggest news surrounded one of his buys, and not his sells. That's because in the past few quarters, Buffett has been unloading his rather large stakes in Apple (NASDAQ:AAPL) and Bank of America (NYSE:BAC), choosing to park billions more of his capital in short-term Treasurys (effectively cash) rather than having his capital work for him in companies many investors still consider to be the cream of the crop.

These moves, and Buffett's commentary on how richly stocks are valued today, suggests he's in the mode of feeling fearful when everyone else in the market is salivating with greed.

That said, his decision (or his team's decision - we'll likely find out at some point) to make a rather significant bet of more than $4 billion in Alphabet (NASDAQ:GOOG) certainly took some investors by surprise. One of the leaders in the AI race, this move is indicative of a potential changing of the guard at Berkshire, where Warren Buffett's lieutenants are taking more of a firm hold on the direction this company will be headed in the future.

So, perhaps Buffett and his team believe there's some value in the AI trade. Maybe there's still hope for AI investors, yet.

Compounding and Time Are Investors' Best Friends

A stop watch showing the words yesterday, now and tomorrow

Having run money for clients for more than five decades, Warren Buffett is about as telling of a business school case study in what time and compounding can do for one's returns over a very long period of time.

Most investors who have even remotely followed Warren Buffett's story are likely aware that the Oracle of Omaha really didn't create serious wealth until after he turned 50. In fact, the majority of his net worth came after this age, as the value of his holdings within Berkshire ballooned in value.

It takes time to build wealth slowly. And while Buffett did start out with a decent chunk of capital at perhaps the perfect time in history (before one of the biggest productivity booms in history), it's also true that his patience and steadiness in holding positions for very long periods of time is what's been key to his ability to grow his net worth to unimaginable levels.

What's perhaps even more incredible is that Berkshire's portfolio consists mainly of what I'd call defensive or low-beta stocks. In other words, Buffett didn't ramp up the risk profile in his portfolio to beat the market. He was the turtle, when everyone else in the market wanted to be the hare.

I'll try to emanate his returns in my own portfolio by following his other piece of advice for investors who don't want to spend the kind of time he has over his career in picking stocks - simply investing consistently in passive index funds and generating average returns for an above-average amount of time. That's something I think is possible. Replicating his returns is likely an impossible task.

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