It would be easy to take the many bits of hard-won investment advice from Warren Buffett for granted. He’s delivered his gems over the years in such a relaxed style, that sometimes they sound simple and obvious. And there have been so many of them, that it’s tempting to collect them all and focus on none of them.
One of Buffett’s key skills
Big mistake. Buffett’s wisdom is really the distillation of all his experience and analysis. He’s been applying his mind to the conundrum of investing for almost eight decades. Indeed, he bought his first stock at age 11, in 1942.
You don’t need me to tell you that the billions he’s worth now means his investing career has been extremely successful. Arguably, he’s the most consistently profitable ‘general’ investor the world has ever seen.
One of the core skills Buffett himself cites as key to his success is focus. And I think one of his utterances is worth concentrating on. This one piece of homespun, folksy, avuncular advice could help you smash the stock market for the rest of your investing lifetime. If you do this one thing well, you’ll have a good chance of beating the performance of the general market indices forever after.
Are you ready? Here it is: “It is not necessary to do extraordinary things to get extraordinary results.” I bet that hardly caused you to raise a single eyebrow. As I said, it sounds so effortless, so easy, so simplistic. But it works!
Do this one thing well
The most prominent unextraordinary thing Buffett has done repeatedly is to buy the shares of great businesses when they are selling cheaper than they usually do.
But he sticks within his circle of competence. He only buys into things he understands. So, you won’t see him investing in cutting-edge tech firms today. And we didn’t see him making billions from dotcoms and internet start-ups 25 years ago.
We do see him in fast-food chains, candy retailers, soft-drink manufacturers, fast-moving consumer goods outfits and insurance companies. Go through his holdings, and the chances are you’ll fall asleep before you get to the end of the list. But they all have several things in common. They display decent quality metrics, they’re growing, and when he bought them, they were selling cheaper than they had been.
His holdings may be boring, but their money-making potential isn’t. And you can build your own portfolio of such holdings in the current stock market environment. It often takes a short-term setback or crisis for the market to deliver the kinds of low prices Buffett is willing to pay for a quality business.
Right now, as an investor like you, I’m finding loads of opportunities to use as building blocks for a long-term ‘mini-Buffett’ portfolio. One I stumbled across just last week (in an avuncular, folksy kind of way) is Associated British Foods, for example.
