Investment guru Warren Buffett is famous for his stockpicking skills over decades. But even he has admitted mistakes in his choices. He is clearly focussed on learning from his mistakes. Every year in his publicly available letter to shareholders of Berkshire Hathaway, he sets out some principles which he applies when investing.
Using Buffett’s approach, I would buy a number of UK shares.
I prefer to buy what I know
Buffett has repeatedly emphasised that it is best to invest only in industries and companies one personally understands. That is why for many years he didn’t invest in tech stocks. He simply said that he felt he didn’t understand the tech area well enough to invest.
I apply that Warren Buffett principle and prefer to invest only in companies whose businesses I understand. For example, one reason I would consider investing in Howden Joinery is because its business is understandable to me. I can visit stores myself, I understand how they stack up against competitors and I can form a view on likely future demand for timber and building products. One reason I like Howden Joinery specifically is their trade-focussed customer support programme. That helps encourage heavy buying trade customers to build loyalty to Howden. I think that’s good for the company’s long-term sales prospects.
Like Warren Buffett, I see value in strong brands
One consistent element to Buffett’s investing style across his career has been how much he values strong brands. That is seen in his holdings like Coca Cola and Kraft Heinz. Brands enable their owners to charge a premium pricing. They also build customer loyalty. That is good for both revenue and profits, in my view.
I particularly like brands where there is no real alternative. Coke’s taste is so iconic that its brand stands alone for many consumers. I feel the same way about Irn-Bru. The iconic soft drink brand owned by A G Barr is able to keep customers for decades due to its uniqueness. I would consider buying A G Barr to benefit from this Warren Buffett principle.
I’d buy shares to hold not trade
Buffett has often gone on the record to say that his preferred length of owning a particular stock is a lifetime. Many investors trade frequently – Buffett doesn’t. He believes that if a share offers a stake in a great company at a good price, there is no particular reason to sell it in the future.
Of course, circumstances can change. Not all great companies continue to perform well and Warren Buffett does sometimes sell his shares. But I do find it a useful screening criterion to ask whether I expect a share to merit a place in my portfolio forever. That is one reason I like Unilever. The company operates in different everyday product areas such as shampoo and laundry detergent. It sells consumers goods priced at different levels, which allows it to access more markets. Unilever invests money building brands, which as I explained above makes it attractive. I see Unilever as a classic buy and hold share pick in the style of Buffett. Instead of just cleaning up with its products, I would seek to clean up with its shares too.
