You don’t live to be 88 and amass a multibillion-dollar stock market fortune without accumulating considerable knowledge about investing. Warren Buffett — a.k.a. the Sage of Omaha — has become a legend in his own lifetime due to his longevity and success.
If you’re looking to start investing in the stock market, here are three simple investments that could enable you to benefit from Buffett’s wealth of wisdom.
The most immediate way to align yourself with Buffett is to buy shares in his investment company, Berkshire Hathaway (NYSE: BRK.B), which is listed on the New York stock exchange. With a market value of over $500bn, Berkshire is one of the top stocks in the S&P 500 — an index of 500 of the US’s biggest companies. Over the last 53 years, Buffett has increased Berkshire’s value at an annualised rate of a bit over 19%.
Berkshire owns, or has a controlling stake in, a number of private businesses, but also has investments in a range of stock market-listed companies, including American Express, Apple and The Coca-Cola Company. Of course, one consideration for investors today is that Buffett is no spring chicken and — when the time comes — there can be no guarantee Berkshire will be as rewarding under the management of his successors.
One alternative — and an attractive one for UK investors, in my view — is to buy shares in London-listed Finsbury Growth & Income Trust (LSE: FGT). This investment company’s portfolio has been managed for the last 18 years by Nick Train, who has been dubbed “Britain’s Warren Buffett,” due to his devotion to investing by Buffett’s fundamental principles. Finsbury’s annualised return over the last 10 years has been just under 19%.
Many of the companies Train invests in are recognisably ‘Buffett-type’ stocks — that’s to say, they have certain business and financial characteristics that Buffett looks for. Indeed, one of Train’s biggest holdings, Unilever, was the subject of an attempted takeover last year by Buffett-controlled Kraft Heinz. Other top stocks in Finsbury’s portfolio include drinks giant Diageo, financial services company Hargreaves Lansdown and fashion house Burberry.
Buffett has said many times that he believes (and there’s plenty of data to support it) a low-cost index-tracking fund will deliver superior returns to those achieved by most investors, whether private or professional. In fact, in a bequest in his will for the benefit of his wife, he has advised the trustee to invest 90% of the cash in an S&P 500 index fund.
Such funds simply mirror the return of the index, less a small annual management charge. S&P 500 trackers are available in the UK. This index has been a strong performer historically (an annualised return of 17% over the past 10 years), but other options, including the FTSE 100 (11% annualised return) or FTSE World (14%) could also be worth considering.
Finally, while it’s unlikely you’ll ever come close to achieving the level of wealth Buffett has accumulated in his lifetime, history shows that long-term investing in the stock market makes financial independence a realistic goal for many people. Furthermore, as a general rule, the sooner you get started, the better.