ING Groep : Slow and steady wins the race

22 June 2016

Billionaire US investor Warren Buffett is probably the world's highest profile investor. What may come as a surprise is that he is not necessarily a great stock picker, a recent research report concluded. So what does this mean for the average investor?

In a recent eZonomics blog, Investors Chronicle writer and economist Chris Dillow explains that despite the masses of books purportedly explaining the secret of his success, almost no one has matched Berkshire Hathaway chairman Warren Buffett's investment track record.

What is even more of a mystery, says Dillow, is that a recent report by economists at AQR Capital Management concluded that the types of shares Buffett prefers - low risk, cheap and high quality - tend to perform well in general, not just the ones that Buffett buys.

Stay within your comfort zone

So if stock picking isn't necessarily his secret to success, what is?

Dillow argues that Buffett's great success has been determining the right investment strategy for his company, Berkshire Hathaway, and sticking to it, no matter what. And he also stays with what he knows best, and doesn't stray beyond.

'He has stuck to his principles of investing in safe quality stocks even in bad times, such as during the tech bubble of the late 1990s when those shares fell out of fashion. This meant that he made big returns when those stocks returned to favour,' Dillow said.

'Many investors lack this self-control. They get disheartened by losses and therefore sell when stocks are unusually cheap. Or they start by investing in proven value shares but get tempted by speculative plays. Or they get carried away by herd thinking and so buy near the top of bubbles.'

Buffett has often claimed that discipline and the 'right temperament' are more important than IQ when it comes to investing.

While the billionaire investor is successful holding to some firm investment rules, it also helps that Buffett has an insurance company which supplies a steady flow of low-cost funds in the form of insurance premiums, which he can invest. This helps him multiply returns. The premiums are in effect a type of loan.

To read the full article, go to ING's eZonomics website. eZonomics combines ideas around financial education, personal finance and behavioural economics to produce practical information about the way people manage their money - and how this can affect their lives.

It contains informative blogs, tips to manage money better, as well as articles and videos on topical and interesting subjects in personal finance. The latest reports from ING's International Surveys, which show savings, borrowing and investment patterns around the world are also accessible on the website.

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