Can Warren Buffett techniques work when investing £500?

Warren Buffett applies his investment approach using large sums of money. Christopher Ruane explains why he follows the same principles with far less money.

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.

Warren Buffett at a Berkshire Hathaway AGM

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As one of the most successful investors of the past century, Warren Buffett inspires curiosity among many share buyers. They want to learn from his investment techniques and see whether they can emulate his success.

But Buffett is used to managing billions of pounds. Can his techniques work even if one is investing a more modest amount, such as £500? I think they can. Here is how.

Warren Buffett buys shares in public companies

One of Warren Buffett’s favourite investments is putting money to work in the stock market. By buying shares in large listed companies, he hopes to benefit from their asset base and professional management without having to get involved directly.

That is often as easy for me to do as it is for Buffett. Admittedly the percentage impact a commission has on a £500 portfolio may be higher than on a much larger portfolio. But I could buy shares in the sorts of companies Buffett does, such as Coca-Cola or American Express. Indeed, there is a wide array of companies in which I could invest with my £500 whether or not Buffett owns them. To reduce my risk if a company performs poorly, I would diversify my portfolio across multiple companies.

Focussing on value creation

When deciding what shares to buy, Buffett does not pay much attention to stock market fads. Instead he assesses whether he thinks the return he can get from holding a share will reward him well enough, allowing for the risk of holding it.

To do that, he makes some judgements. He considers a company’s business and its long-term durability. He also looks at its competitive advantage. Buffett likes a company with a strong competitive advantage, which he calls a “moat”. That is what enables a business to raise its prices over time and hopefully make profits year after year.

So, when Buffett looks at shares he might buy, he zooms in on how much money he reckons the company may be able to earn in the future. He then compares that to the current price at which the company’s shares trade. That focus on the potential for value creation is something I can also do as a private investor with £500 to put to work in the market.

Taking time and researching

Warren Buffett is a very patient investor. He is willing to sit on funds for years if necessary until an investment opportunity comes along that he regards as sufficiently attractive.

He spends a lot of time reading and learning about companies, even ones he does not buy. That helps him be better prepared when an opportunity arrives which he does like.

If anything, I think these habits of patience and research might actually be even more useful to me with £500 than to Warren Buffett. After all, with the large funds at his disposal, Buffett can afford some serious mistakes. But with just £500 to invest, a few serious mistakes could wipe out my investment funds. Buffett has a much larger scope for error. That is why I take my time, read widely, and carefully research potential shares for my portfolio. Investment is a marathon not a sprint.

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 assessed. Consider taking independent financial advice.

Christopher Ruane has no position in any of the shares mentioned. American Express is an advertising partner of The Ascent, a Motley Fool company. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »