Modeling the World’s Greatest Investor

How do you achieve excellence in any area within a short period of time? The key is through modeling. Modeling is the technique of finding role models who are the best in their field and then studying and distilling the mental models and strategies that make them the best in what they do. By learning and applying their strategies, you will be able to produce the same phenomenal results they do, or maybe even better.

While the role model may have taken thirty years of trial and error to find the winning formula and perfect his strategy, you will be able to shorten your learning curve considerably by replicating his winning patterns.
In fact, if you study the most successful people in history, they all employed the power of modeling. They believed in standing upon the shoulders of giants rather than to re-invent the wheel.

The Wright Brothers and early flight pioneers got their ideas of aircraft design by modeling the body structure and flight movement of birds. Ancient Chinese monks developed the art of Kung Fu by observing, modeling and imitating the fighting techniques of animals (tiger, monkey, snake and bear) and insects (praying mantis).

The government of Singapore managed to turn a ‘dot’ on the world map, basically a trading port, into a first world economy with a GDP (Gross Domestic Product) per capita ranked 18th in the World (World Development Report, 1993) in just 28 years! This was achieved by modeling the best practices of countries like Switzerland (governance and banking), Israel (warfare), the United States (Commerce) and the United Kingdom (law and education). As you can see, modeling is not just about copying someone else. It is about distilling the best practices of a whole range of excellent role models, taking the best from each of them and developing an even more powerful strategy.

So if you want to be an excellent investor, who better to model than Warren Buffett, the world’s greatest investor? Warren Buffett is currently the second richest man in the world with a personal fortune of $42 billion (second only to Bill Gates $46 billion). The amazing thing about Buffett is that he made all his money without making or selling any kind of product or service.

He made it entirely by investing in the stock market. Over the last 49 years, he managed to achieve a 24.7% annual compounding rate of return, which means he made his money double every 2.9 years! How does he achieve this remarkable feat when 97% of professional fund managers cannot even beat the S&P 500 consistently every year? That’s exactly what got me so excited to study and model this genius a few years ago.

By reading every single book written about Buffett as well as his own personal writings, I found that the beliefs he has about the stock market and the strategies he uses go completely against what mainstream finance teaches and what professional fund managers do.

If you learn and use the same recipe, you are going to produce the same cake. So, let’s get started! Before modeling someone’s strategies and techniques, it is first important to understand and model the person’s beliefs. A person’s beliefs is what drives their decision-making patterns and the actions they take. The reason why Buffett is able to make more money than any other investor in the worlds is because he has very different beliefs about how the stock markets acts and how to buy stocks. If you want to model his success, an important step would be to adopt his beliefs and strategies.