How You Can Beat Buffett’s 19.9% Yearly Returns and Get Paid Monthly

Can you and I beat the legendary returns of Warren Buffett? Absolutely. What’s more, we can do it while “translating” a slice of our gains into a big income stream (with special dividends on the table, too).

I’ll show you how in a moment.

First, we need to talk about how the 94-year-old Oracle of Omaha, who is now stepping back from the position of president and CEO of Berkshire Hathaway (NYSE:BRKa) , has changed the course of investing over the years.

Every year, as you likely know, Buffett releases a simple letter to investors showing what’s happened with Berkshire’s portfolio. While there have been a few lean years, his outperformance is astounding: a 5,502,284% return on every dollar invested at the start of his 60-year career.

That amounts to a 19.9% annualized gain, nearly double the S&P 500’s 10.4% in that time.

That gap is impressive enough, but compounding makes it a difference of millions of percent. This just proves one of Buffett’s main arguments: One needs to stay in the market, patiently outlasting all the short-term panics (like the recent tariff hysteria) and patiently buying when assets are oversold.

Second, it’s worth noting that stocks themselves did well in that time, with double-digit profits. That means retirement is more attainable than most people expect.

If you could turn, say, half of that 19.9% yearly return into income, you could score a healthy six-figure income stream by investing a little over a million dollars. That’s what that fund I mentioned off the top can do for us. We’ll talk about this off-the-radar ticker in just a few more seconds.

First, I do need to rain on Buffett’s parade a bit here: The truth is, most of his outperformance stems from the early years of Berkshire Hathaway’s operations.

Berkshire’s Strong—But Waning—Returns

Some quick numbers: Berkshire Hathway (shown in purple above) has had a 19.1% total annualized return over the last 45 years, as we just discussed. But over the last 20 years, its return has slipped to 11.9% annualized, just ahead of 10.2% from the S&P 500 (in orange above). It’s also less than the NASDAQ 100, in blue, at 14.8%.

In fact, since the 2000s the tech- (and growth-) focused NASDAQ 100 has beaten both the S&P 500 and the value-investing strategies of Mr. Buffett.

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We can clearly see that in the performance of the NASDAQ 100, shown through its main index fund in purple below. The NASDAQ has easily outrun the value-focused iShares S&P 500 Value ETF (NYSE:IVE), in orange below.

The most “Buffett-like” closed-end fund (CEF), the SRH Total Return Fund (NYSE:STEW), in blue, has also been dusted by the tech-heavy NASDAQ. STEW invests half its assets in Berkshire and the rest in Buffett favorites like JPMorgan Chase (NYSE:JPM).

NASDAQ 100 Outruns “Buffett-Like” Funds

A key thing to note about this chart is that the NASDAQ 100’s outperformance has been accelerating. That’s because it’s tilted toward tech, and our economy is becoming more tech-focused. So tech stocks will likely rise more than those favored by value investors over the long haul.

A CEF That “Translates” Buffett-Beating Gains Into Income

That’s the perfect segue into the CEF I want to spotlight today, the Columbia Seligman Premium Technology Growth Fund (NYSE:STK). As you can see below, STK (in orange) outperformed Berkshire (in purple) over the last decade.

STK Tops the Oracle (NYSE:ORCL)

In fact, not only has STK outperformed, but it’s delivered a large slice of those gains as income. The fund yields 6.6% as I write this, and its normal payouts have stayed rock steady over the last decade. Plus, STK has paid out a lot of special dividends (the spikes below) that make its total yield to investors even bigger.

Source: Income Calendar

Even ignoring those special payouts, investors who stuck with STK over the last decade would now be enjoying a 9.8% yield on their original buy, since STK’s unit price has nearly doubled in that time. So they’d be getting a bit less $100,000 per year for every million dollars invested, again before we consider those special dividend payments over the years.

Will this continue? It depends whether tech will stop being a major part of our lives and whether Wall Street will forget the value-investing strategies Buffett espoused. I think you’ll agree that neither scenario is very likely.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement ."

Written By: Contrarian Outlook