Buffett's "Dirty" Little Secret

Warren Buffett is always a hot topic and today I've asked Greg Roy, who has a unique opinion on Buffet's strategies, to share what he calls "Buffett's dirty little secret". Whether you agree or disagree, Greg will certainly leave you with something to think about. Whatever your stance, we encourage you to comment below and dig deeper into Greg's reasoning with his latest report.

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They’re missing the point.

Nine out of ten “gurus” who tell you to “invest like Buffett” preach that you should “buy great companies at a discount.”

And yes, on the face, that’s “what Buffett does” – but completely overlooks the real secret to Buffett’s investing genius.

I’ll be the first to admit I’m no “Buffophile” – some of the blind adoration heaped on him in some quarters I find not only distasteful but propagates dangerous attitudes about investing and trading. But I do think he’s as close to a genius as any investor in recent history.

Because Buffett is playing a completely different game than everyone else.

* There’s a reason none of the fund managers who try to mimic his investing style can match him – no “value” fund really can do what he does…

* There’s a reason none of the “investing gurus” who try to model his strategies can match his returns …

* There’s a reason why no one has come up with a trading strategy that consistently performs as well as Buffett across all economic and market environments …

And it has nothing to do with how great of a “stock-picker” he is. I recently wrote a report detailing Buffett’s “Dirty” Little Secret explaining why he talks “buy & hold” but that has nothing to do with stocks. And why investors who got suckered into it have gotten their butts handed to them over the last few decades.

The fact of the matter is: Buffett has built his success on a frame-work of “free money” – even though he tells people never to invest with other people’s money that’s exactly what he’s done since the beginning.

From his first partnership where the majority of his money came from investing his partner’s money to the unique “float-centric” business model of Berkshire-Hathaway where he gets to buy companies using insurance premium money.

Buffett’s innovation is a business model where cash is his competitive advantage. He’s so successful because he does what I call “hyper-compounding” – he uses money to get more “free money” which he then invests into more cash-producing assets.

If you read his last shareholder letter you know he explained, “The engine behind Berkshire’s growth …allows us to enjoy the use of free money – and, better yet, get paid for holding it.”

He makes money six ways from Sunday on every investment.

For instance; did you know Buffett risked more money on an options trade than he laid out for Burlington Northern railroad – his biggest purchase ever? It’s true – he risked $37 billion because of the “free money” side of the equation which gave him close to $5 billion in free money to play with.

But investors keep getting fooled by all of the talk – they don’t see that “buy & hold” is Buffett’s ace in the hole in the favorite poker game of Wall Street Whales – it’s not an investing strategy for you and me. I explain why in this report: Buffett’s “Dirty” Little Secret

Warren Buffett’s spectacular track record is the elephant in the room for investors and traders. Love him or hate him, everyone seems to feel the need to understand his success -$10,000 invested in 1965 would now be $80 million.

But in that process I advise you to think for yourself.

Look at the facts and see if you agree with me it’s smarter to do as Buffett does, not as he says. Obviously, not all, or even most, of Buffett’s “free money” strategies are open to us – unless you buy an insurance company outright – but a few of them are.

And I for one think that’s worth understanding.

Greg Roy