Warren Buffett watching for investment tips

But if you have just slavishly followed Buffett's investment picks over the year and added each to your portfolio, then you would not have done badly at all. Cetainly, you'll have bought into very few of the mistakes that drag down the average investor.

This year the Sage of Omaha sent shares in American railways soaring, after revealing his holdings. Buffett's letter explains that with gas prices rising, railways are becoming more economic and the trains are now being well run.

But who else would have bought railway stocks that have been out of favour for most of this century? Presumably the same guy who bought Coca Cola shares and keeps on buying them whenever the markets turn down.

Timeless investor

One thing Buffett does not do is try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. He wisely sees the market as too unpredictable for forecasting, whereas individual stocks have financial data than can act as a much better investment guide.

On CNBC TV recently, Buffett said he thought the current market was neither expensive nor too cheap and that is about as close to a forecast as he gets.

Aside from the railroads, other recent additions to the Berkshire Hathaway portfolio include ConocoPhillips and Johnson & Johnson, while Buffett has also increased his holdings in Moody's and American Express. And you just cannot argue with the investment performance of Berkshire Hathaway.

From 1980 to 2003 this stock portfolio outperformed the S&P 500 index in 20 out of these 24 years, and the average annual return was 12 per cent above the growth in the index. According to the efficient market theory this should be impossible as share prices constantly change to reflect new data.

Tin can alley

But as Buffett once remarked, if that were really true then 'I might be just another bum on the street with a tin can'!

Buffett has also turned to private equity investing in the past couple of decades, finding more value in private acquisitions than among publicly quoted shares. Many of the sellers of these businesses accepted Berkshire shares and have done very well from doing so.

Indeed, Berkshire has become a home of choice for many private investors looking to sell out, and Buffett's latest annual letter issues a plea for more offers.

Clearly only a few lucky entrepreneurs will be allowed to join this select club. You have to wonder if the rest of us shouldn't just be done with it and buy Berkshire shares, realising that if you can't beat them you might as well join them!

See also:
Lessons from the Soros and Buffett master class

A year when cash will be king!

Warren Buffett's advice on how to get rich