If you want to invest using the same principles as Berkshire Hathaway chairman Warren Buffett, there's no shortage of articles offering advice on how to do it.
Few investors, however, have gotten the opportunity to emulate the Oracle of Omaha the way Tracy Britt Cool has.
As one of Buffett's top lieutenants, Britt Cool became chief executive at Berkshire Holding Pampered Chef and garnered enough of a reputation as a quick-thinking manager that Buffett called her "the fireman" in an interview with the Wall Street Journal.
In 2020, Britt Cool left Berkshire to cofound her own investing firm, Kanbrick, where she has continued to invest in and optimize businesses. Britt Cool's approach to investing echoes Buffett's in some key ways, but differs in others. Here's how she breaks down the similarities and differences.
Emulating a 'remarkable organization'
"Berkshire is a remarkable organization that has been built over decades to support founders, families and for people who do business with them," Britt Cool says. Here are three things she says she learned at Berkshire and took with her to the firm she founded.
1. Thinking long-term
"Berkshire has permanent capital," Britt Cool says, meaning that it doesn't have to return money to investors on a particular timetable. "That's very valuable. You can invest in companies. You can make investments in people and in new businesses. As an organization, that can be really powerful."
A focus on the long-term allows investors like Britt Cool and Buffett to take calculated risks and harness the power of compounding interest. Because they don't chase short-term profits, they're never forced to sell an investment they believe can continue to improve or buy one that would introduce too much volatility into their portfolios.
2. Building relationships with businesses
Buffett is famous for homing in on businesses run by people he sees as great managers, and Britt Cool is no different.
"There's a growing group of founders and families who really care about where their company ends up. And they want strong partners," Britt Cool says. "If you build an organization that has respect for them, you can build something really unique and special."
3. A focus on quality companies
Like her mentor, Britt Cool focuses on businesses that can stand up to rival firms. "The last [similarity] I'd say is just the value of finding high-quality businesses with competitive advantages," she says. "These businesses compound and they have a long runway."
A company can look extremely attractive now, but if it can't fend off challenges from competitors, the thinking goes, it's unlikely to produce sustainable high returns over time.
Where Britt Cool is forging her own path
Despite the similarities in approach, Britt Cool says she isn't trying to build a mini Berkshire. Here are biggest distinctions she draws between her approach and Buffett's.
1. Size
"Warren would say, 'Size is not your friend.' The bigger you get, the harder it is to deliver the same returns," Britt Cool says.
Nevertheless, due to the size of his portfolio, Buffett tends to acquire jumbo-sized businesses. Kanbrick, meanwhile, focuses on small to midsize companies where Britt Cool says she and her team can add the most value.
"We focus on companies that are too small for Berkshire," she says.
2. A hands-on approach
Buffett likes to delegate, letting people he thinks are great managers run the show. The hands-off approach "works really well when you have a really strong CEO, when the company's very established and the industry isn't changing all that much," Britt Cool says.
Execs at smaller firms, however, are often looking for more support, she adds. "They want to have a sort of partner in their thinking that can help them."
Advice for retail investors
It turns out, for the average Joe, trying to invest like Britt Cool is a lot like trying to invest like Buffett — impossible unless you suddenly gain access to billions of dollars and a much deeper well of investment research.
"Investing is very challenging for people who do it full-time, and for people who do it part-time, it's even harder," Britt Cool says.
If you're an everyday investor looking to mimic Britt Cool's style, start by focusing on high-quality companies that are at the top of the food chain in their industries, she says. Imagine what it would take for a rival firm to usurp your chosen company's business. If that's hard to conceive of, you're on the right track.
You'll also want to focus on who runs the show. Do you what you can to assess the management of any company whose stock you're looking to buy.
"We're trying to address the talent in the organization, in the management team — their ethics, their integrity, their insight, their competence and their ability to navigate the system," Britt Cool says.
You probably won't be able to access key players directly, but you can see what execs have said in publicly available financial filings and earnings call transcripts.
And do your best to keep an eye on a stock's price tag. Like Buffett, Britt Cool looks to buy companies trading below their intrinsic value.
"Oftentimes, if you pay above-average valuation, it doesn't give you much margin for error," she says. By buying stocks when they're trading cheaply, she says, you won't get dinged as badly if your assumptions that the stock will grow are off.
However, for many investors, doing the sort of work it takes to invest in winning stocks simply isn't worth it, Britt Cool says.
"I think for a retail investor, those things are hard to do," she says. "My advice, typically, to retail investors is to invest in S&P 500 index funds or other things that, by and large, go up over time."
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