Doing a Buffet

[jcc]

Buffet had very different reasons to allocate in this manner, it cannot be applied 1 to 1 for a retail investor. He is very clear that he recommends investor use passive and not mirror his investments.

He would almost assuredly tell you to invest in all in a s&p500 fund...

Just to expand on this: Buffet and other large institutional investors have a whole different problem to deal with than normal investors. Their buying and selling activity significantly shifts the cost of the stock, so they can't easily buy or sell big chunks on demand so they have to use strategies different from us common people.

Imitating them is just applying that same limitation to yourself when you don't need it.

[captainspoke]

I guess I replied earlier but didn't mention this (the english teacher in me...):

buffet:


Buffett:

... Buffett and other large institutional investors have a whole different problem to deal with than normal investors. Their buying and selling activity significantly shifts the cost of the stock, so they can't easily buy or sell big chunks on demand so they have to use strategies different from us common people.
...

And Buffett has so much money that BRK necessary deals in large caps. $50 million to even a billion or more is sort of peanuts from their POV--when you've got $80 billion of cash on hand.

[northSaver]

I guess I replied earlier but didn't mention this (the english teacher in me...):

Well spotted! Thanks

Imitating them is just applying that same limitation to yourself when you don't need it.

Maybe you're right. Though I think that it generates interest in the stocks at least, and a few investors riding on the coattails such as me. It may be unrelated but the ETF I bought in late December (1629) is up 4.6%, whereas the Nikkei 225 is up 4.0%.

[mighty58]

As someone who has had a relatively high degree of exposure to shosha stocks over the last decade (for reasons which I won't get into here), I've spent the past year selling down my holdings bit by bit and transferring that money elsewhere (indexes mostly). You're right, in the period following Buffet's investment, the stocks have performed remarkably well, and are at record highs. I can't predict the future, obviously, but I'm not sure I would be so eager to buy in now... it does feel very high, and today's profits are largely attributable to natural resources, which are cyclical by nature.

[Teflon]

The problem is that if I buy just the stocks then the juicy dividends that these firms pay out will not be reinvested and so will not compound over the long term. In fact I'm not sure I'm even able to buy stocks in these companies with such a paltry amount?

I'm American so I cannot invest in Japanese index or mutual funds. When I got started with Nisa in 2021 I used the same strategy that you outlined and it has worked out very well for me so far. I don't worry about buying all the companies at once though, I just buy 100 shares of each until the NISA gets full. Actually, I skipped ITOCHU which seems overpriced to me and pays a lower dividend, and substituted Sojitz instead which is cheaper and pays a higher dividend. Sojitz is a legit trading company in the same industry as its larger peers.

With regard to dividends, I don't understand the issue. I just let them accumulate over the year and then re-invest them in the following year's NISA. Unless I've missed something, this is nearly equivalent to the idea of a mutual fund automatically re-investing the dividends. The main difference is that you have greater control over where to invest those dividends so if a couple companies are down for the year, you can buy them while they're cheap. You can't do that in a mutual fund.

[northSaver]

With regard to dividends, I don't understand the issue. I just let them accumulate over the year and then re-invest them in the following year's NISA. Unless I've missed something, this is nearly equivalent to the idea of a mutual fund automatically re-investing the dividends. The main difference is that you have greater control over where to invest those dividends so if a couple companies are down for the year, you can buy them while they're cheap. You can't do that in a mutual fund.

The logic is that if the dividends are reinvested automatically then you can invest the full NISA allowance again next year. Also they will probably be reinvested more than once a year, which aids the compounding effect.

If you have to reinvest the dividends yourself at the start of the new year then you will be using some of your NISA allowance to do this. So less new money will be invested tax-free, which will make a difference over time.

It could be argued that if you're at the end of your accumulation phase then you can spend that money which you would have invested on something else instead. In other words, use the dividends as income. But in most cases it makes more sense to invest in accumulating funds (dividends automatically reinvested) in tax-free accounts over the long term if you can.

[Teflon]

The logic is that if the dividends are reinvested automatically then you can invest the full NISA allowance again next year. Also they will probably be reinvested more than once a year, which aids the compounding effect.

If you have to reinvest the dividends yourself at the start of the new year then you will be using some of your NISA allowance to do this. So less new money will be invested tax-free, which will make a difference over time.

Oh, I see your point. Yes, if you are maxing out your NISA every year then it would make sense to invest in a fund. I'm thinking with the new NISA coming up there will be twice the allowance so I'm not too worried about crowding out my allowance just yet.

[TokyoBoglehead]

The logic is that if the dividends are reinvested automatically then you can invest the full NISA allowance again next year. Also they will probably be reinvested more than once a year, which aids the compounding effect.

If you have to reinvest the dividends yourself at the start of the new year then you will be using some of your NISA allowance to do this. So less new money will be invested tax-free, which will make a difference over time.

Oh, I see your point. Yes, if you are maxing out your NISA every year then it would make sense to invest in a fund. I'm thinking with the new NISA coming up there will be twice the allowance so I'm not too worried about crowding out my allowance just yet.

The max you can contribute in is 18 mil @ 3.6 mil a year. However, that amount can continue to grow past those contribution limits.

You want the balloon to continue to expand as much as possible, by receiving dividends, you are letting air out of the balloon.

This is a a suboptimal strategy.

[zeroshiki]

This is a a suboptimal strategy.

But have you considered the high you get for pretending to be Warren Buffet?

[beanhead]

I'm American so I cannot invest in Japanese index or mutual funds. When I got started with Nisa in 2021 I used the same strategy that you outlined and it has worked out very well for me so far. I don't worry about buying all the companies at once though, I just buy 100 shares of each until the NISA gets full. Actually, I skipped ITOCHU which seems overpriced to me and pays a lower dividend, and substituted Sojitz instead which is cheaper and pays a higher dividend. Sojitz is a legit trading company in the same industry as its larger peers.

Be careful with the shosha, as they are mostly seen as PFICs, I believe.
I am pretty sure Itochu is a no-no. SoftBank, Orix too, if I remember rightly. Sojitz is a great stock to hold, but I hope it doesn't get you into trouble...