How I use the Warren Buffett way to make money investing

What would Warren Buffett do about GameStop, silver, or Bitcoin? Here’s how I use his methods to make money investing.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When I think about Warren Buffett, the first thing that comes to mind is consistency. It’s the hardest skill to master for investors.

Any idiot (including me) can get lucky on a speculative bet. It’s like picking red or black at the roulette wheel. But following the Warren Buffett way will help me grow the biggest pile of long-term wealth.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

So what does he do, and how does he do it?

Avoid risk to make money

Whenever someone wants me to get involved in high-risk investments, they always focus on the huge possible rewards. It’s funny how they never mention the crippling potential downside if it all goes wrong.

The thing that really made Warren Buffett a legendary value investor is avoiding risk. That might read like a boring sentence! But investing should be boring. When it starts getting risky and exciting, that’s when I start to lose money. And Warren Buffett didn’t make $88.5bn by chasing fads.

In the dotcom boom from 1998 to 2000, Warren Buffett’s Berkshire Hathaway was ridiculed for ignoring internet stocks. But it was this discipline for avoiding buzzy, overvalued companies that saved him.

From March 2000 to October 2002, the tech-focused NASDAQ fell 78%, losing all its gains from the bubble. Over the same period, Berkshire Hathaway gained 80%!

Warren Buffett: ignore the news

Take any flavour-of-the-month stock or asset. Bitcoin. The so-called ‘silver squeeze’ . GameStop. It’s generating huge amounts of headlines and investors are falling over themselves to throw cash at it.

As a value investor who follows the Warren Buffett system I want to do the exact opposite. I want to buy high-quality shares at the lowest-possible risk. 

That means buying good companies when no-one is talking about them. When prices are depressed and out of whack with the long-term value I think I’ll receive.

I can use his favoured valuation methods like price-to-earnings ratios to see if company shares are cheap. Warren Buffett also likes to focus on margin: that is, how much profit a company makes from the products it sells.

It’s just a fact that high-margin companies are more likely to recover from a short-term bad spell than those that have to spend a lot of money to bring in their cash.

Think price vs value

It took me an embarrassingly long time to figure out what Warren Buffett actually meant by: “Price is what you pay. Value is what you get”.

Often share prices really have no relation to how much value is on offer. Sometime the market is super-optimistic about a company’s chances of making profits. Sometimes it is super-pessimistic.

I want to follow the Warren Buffett way. That is: to buy companies with good track records when everyone else sees the glass as half empty, not half full. That way I can pay a relatively low price and get good value for my money.

It’s not a casino, a lottery ticket, or a get-rich-quick scheme. But this is the way I’ll grow my wealth long term.  

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

TomRodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Senior woman wearing glasses using laptop at home
Investing Articles

2 value stocks with high dividend yields to buy in July

Our writer examines two value stocks for his portfolio that marry low price-to-earnings ratios with high dividend yields.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Could I double my money buying at today’s Scottish Mortgage share price?

The Scottish Mortgage share price has crashed. Does that mean now could be a rewarding moment for our writer to…

Read more »

Hand holding pound notes
Investing Articles

Will the Lloyds dividend yield top 5%?

Our writer considers the outlook for the Lloyds dividend -- and what he should do about it.

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

3 ways I’m protecting my FTSE 100 stock portfolio right now

Jon Smith writes about several different ways he's trying to plan for the future to try to make his FTSE…

Read more »

Preparing a budget during a pandemic
Investing Articles

3 reasons I think the Aviva share price could double in 5 years

I'm not aiming to get rich quick, but today's Aviva share price makes me want to buy more and hold…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The easyJet share price fell 10% last week. Here’s what I’m doing!

Last week saw the easyJet share price continue its poor performance. Here, this Fool weighs up if this is an…

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

Are Royal Mail shares a buy today?

Royal Mail shares have experienced a drastic fall this year. In this article, Charlie Keough decides whether this is an…

Read more »

A bull outlined against a field
Investing Articles

2 FTSE 100 shares for the new bull market

I think the FTSE 100 is home to some promising companies such as these two I'd consider owning shares in…

Read more »