Can We Achieve Warren Buffett Like Success?

Every humble value investor can achieve Buffett like success even today, in the altered scenario. The magnitude may not exactly match Buffett’s but the success could be equally significant and life changing. These are not my words. Buffett himself is proclaiming them from the rooftop of every forum.

In order to substantiate the statement that everyone of can do well as investors we have to analyse the principles of investing over which the edifice of investing success is built. These are:

Extraordinary Intelligence is not required:

Investing success does not require extraordinary intelligence. What it requires is a sound frame of mind, patience and discipline. It is about character and right attitude.

Never to lose money:

Buffet prescribes only two rules. “Rule No.1: Never lose money. Rule No.2: Don’t forget Rule No.1.”

When Buffett advises not to lose money, what is he meaning? He is talking about losing money, he is talking about dangerously speculative acts performed under the misunderstood guise of investing; day trading and margin trading.

He is warning against dabbling in stocks without prior knowledge when he says "Risk comes from not knowing what we are doing." For those who cannot afford to learn investing, he is advising them to invest in well diversified index funds.

A very long time is required:

The real secret behind investing success is the long time required. Only over very, very long timeframes does the miracle of compounding get an opportunity to wave its magic wand. There are absolutely no shortcuts. Buffett himself says that in life certain things take time and we cannot change them. He says"You cannot get a baby in one month by making nine women pregnant." 

To lead a simple life:

Leading a simple life and controlling the urge to splurge will put more extra cash in the hands which can be channelised into investments and compounding. Buffett says that those who understand what extraordinary compounding results can be produced even from humble sums of money will hesitate to throwaway a single dollar.

Mastering greed and fear:

Greed and fear are the two worst enemies of investors. Exorcising these twin ghosts through true knowledge is an essential ingredient of investing success.

Having identified and understood the founding principles behind investing success, we can safely conclude that everyone of us can replicate Buffett's achievement safely through lifetime investments. 

Index Funds of Top 10 Mutual Funds

Meaning:

Index Funds are passive mutual funds that track a popular stock index. Diversified index funds are recommended for investors who cannot afford to learn and invest on their own.

They are called passive because the fund manager need not actively manage the fund by way of frequent purchase and sale of stocks. Stock indices do not undergo frequent changes. Index funds that track popular indices, once constituted by buying shares of that constitute the index in exact proportion, does not require any change unless there is a change in the composition of the index, which is a relatively infrequent event.

Diversity contributes safety based on the principle that when we have a large basket of stocks (about 500 stocks) 80% perform average, 10% perform brilliantly and another 10% will prove to be total duds; overall such diversified portfolio will give reasonable safety.

Example:

We present here a list of index funds offered by ‘The Top Ten Mutual Funds of India’ ranked by the assets under management:

Name of Fund	Index Fund Available?		Name of Index	Number of Stocks	Diversified?
ICICI Prudential Mutual Fund	YES	ICICI Prudential Nifty Next 50 Index Fund	CNX S&P Nifty	50	POOR
HDFC Mutual Fund	YES	HDFC TOP 200 FUND	BSE 200	200	REASONABLE
Reliance Mutual Fund	YES	RELIANCE TOP 200 FUND	BSE 200	200	REASONABLE
Birla Sun Life Mutual Fund	YES	BSL Top 100 Fund	TOP 100 By Market Capitalisation	100	SPARCE
SBI Mutual Fund	YES	SBI NIFTY INDEX FUND	CNX S&P Nifty	50	POOR
UTI Mutual Fund	YES	UTI - Nifty Index Fund	CNX S&P Nifty	50	POOR
Franklin Templeton Mutual Fund	YES	Franklin India Index Fund - NSE Nifty Plan	CNX S&P Nifty	50	POOR
Kotak Mahindra Mutual Fund	YES	Kotak Sensex ETF Fund	S&P BSE Sensex	30	POOR
IDFC Mutual Fund	YES	IDFC Nifty Fund	CNX S&P Nifty	50	POOR
DSP BlackRock Mutual Fund	YES	Top 100 Equity Fund	S&P BSE 100	100	SPARCE
This list is not exhaustive. Funds may have other index schemes that may be more diversified.

Conclusion:

Even though the Bombay Stock Exchange has a well diversified, ‘S&P BSE 500 Index’, we are unable to locate an index funds tracking this index. Perhaps the reason is to cater to customer perception that top index companies are safer and will provide better returns. However, in reality it is a only a fund that tracks a well diversified index that ensures safety and growth.