The "Wisdom" of Buffett ...

04/08/2005 12:00 am EST

Focus:

Paul Tracy

Editor, The StreetAuthority Market Advisor

"Warren Buffett is widely regarded as the world's most prominent value investor," says Paul Tracy. For those who don't want to pay the premium and/or high price for owning Buffett's Berkshire Hathaway, he looks at a mutual fund designed to replicate Buffett’s holdings.

"Although you could perfectly match Buffett's returns by investing directly in Berkshire Hathaway, that stock has historically traded at a 40-70% premium to the firm's underlying asset value. Essentially, you pay this premium for Buffett's track record. Instead, you might want to look into an alternative. If you're interested in mimicking investing legend Warren Buffett's returns, then one of the best ways to do so is through an investment in The Wisdom Fund (WSDVX).

"Although he isn't able to replicate Buffett's holdings exactly, fund manager Douglas Davenport comes close by not only purchasing all of Buffett's publicly-traded holdings, but also by making sure that each represents an identical percentage of his portfolio (when compared to Berkshire Hathaway's portfolio). The Wisdom Fund also does the same with its cash holdings. For example, Berkshire often keeps about 25% of its assets in short-term Treasuries, and not surprisingly, so does the Wisdom Fund.

"When it comes to privately held companies, things get a bit trickier. When Buffett buys a full 100% of a particular company (which he does quite often), it makes it impossible for The Wisdom Fund to invest in that exact same firm. In these cases, Davenport invests in the publicly traded company that most closely matches the firm Buffett invested in. Thanks to the fact that many of these comparable investments have performed extremely well, the fund has done an excellent job of mimicking the returns of Berkshire Hathaway since its inception. Thanks to a stellar investing strategy and a five-star rating from Morningstar, I fully believe it will continue to deliver steady gains in the years ahead."

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