How I invest like Warren Buffett

Learning this simple trick from Warren Buffett and his best ever investment, Tom Rodgers is using it to improve his investing approach.

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.

Some of the best investing advice I ever learned came from Warren Buffett, and it’s no less vital to me today than when I found it 10 years ago.

More importantly, this story is tangled up with some fascinating facts about the company that became Buffett’s best investment.

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Warren Buffett: storyteller

At a University of Florida event, Mr Buffett was asked what seemed to be quite a simple question. Are there any benefits to not being on Wall Street when it comes to investing?

The disadvantage of being in any type of market environment is that you get over-stimulated,” he said. “You think you have to do something every day.”

There are some companies in my portfolio that I’ve held for years, for instance Sylvania Platinum. And there are others I really wish I hadn’t sold. Like Frontier Developments or Team17. Just like Warren Buffett said, I got over-stimulated. I made a few quid on these UK AIM shares, and sold out, thinking I was a trading genius. Of course, because I picked good companies at the time, they have continued to rise.  

In other words, Warren Buffett also said: “What you are looking for is a way to get one good idea a year. And then ride it to its full potential. That is very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports in front of your nose. Wall Street makes its money on activity. You make your money on inactivity.”

My conclusion? Sometimes inactivity — doing nothing — is my best way to make money. 

Bubbling up

Have you ever heard the name Asa Candler? He was a pharmacist by trade, living in Atlanta in 1888. He met John Smith Pemberton, a former army veteran, who had developed a sweetened soft drink he thought could be mass marketed. Candler bought the rights for a total of $2,300. Today that sum would be worth around $65,000 or £45,000. 

Over the course of the next three decades, Candler developed the drink. He advertised it as a headache cure and a relief for mental fatigue. After 20 years on the market, he agreed to remove the cocaine that formed a large part of the recipe. This, of course, was Coca-Cola

In 1919, with the First World War only just over, and stock in the company worth approximately $25m, Candler decided to hand it over to his children. They, in turn, decided to cash in their riches. All $400 million of it. A great decision, right?

Much more

If the family had taken Warren Buffett’s advice and done nothing, they and their grandchildren would be sitting on a fortune 61,400% larger, at $246bn.

Through Berkshire Hathaway Warren Buffett began buying Coca-Cola stock in 1988. It remains his longest-held stock pick and indeed his best, with the stock up more than 2,000% over the last 33 years. 

Finding great stocks that are undervalued is a lifetime’s work. However, Buffett said: “You don’t have to do much else if you pick one of those. And the trick then? Not to do anything else.“

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Tom Rodgers holds shares in Sylvania Platinum. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended Frontier Developments and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). 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.

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