3 easy Warren Buffett investment techniques I use

Investor Warren Buffett has been a successful share picker for decades. Our writer explains three of his techniques he applies to his own portfolio.

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

One of the successful investors whose wisdom I apply when choosing shares for my own portfolio is Warren Buffett. Best known for running Berkshire Hathaway, Buffett managed an investment partnership for many years before that. So he has honed his share picking skills across a long and varied career.

Here are three of his investment techniques I use when buying shares for my own portfolio.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Think about a company not a share

The way Buffett thinks about shares is that they give him a chance to own a slice of a company. So he does not simply buy a share because it is cheap. Instead, he first assesses whether a company is one he would like to own as a whole if he could. Then, he looks at whether buying shares in it could offer him a way to own part of it at an attractive price.

That might sound obvious. But actually I think many investors do the opposite. Tempted by a high yield or a dramatic share price fall, some people buy stocks in companies they do not think are well run. One example of making this mistake myself was my purchase of Centrica. The shares looked cheap to me and the company had a good dividend history. But would I have bought a whole company involved in gas distribution and nuclear power at a time when the regulatory future for both activities was uncertain? I would not. Yet I bought Centrica shares.

Buy with no plan to sell

Buffett has said: “If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

That is a very clear investing philosophy. Buffett is buying for the long term with a plan to hold, not sell. He is not timing market dips. Buffett is not a trader, he is an investor. But a lot of investors would be happy to buy shares and sell them in less than a decade. So, why does Buffett think his way?

I think it is about what he is fundamentally looking for when buying shares. Buffett tries to identify businesses whose sustainable competitive advantages can allow them to generate profits for decades to come. Such companies can be rare. But if an investor finds one, buying its shares can mean huge rewards over the long term. It also reduces the need to buy and sell, with all the trading costs and work involved.

From day-trading to meme stocks, Buffett would not be interested. He is a long-term investor looking for great businesses with strong growth prospects.

Warren Buffett diversifies

The billionaire investor has made some incredible stock picks in his time. So, why did he not just go all in on them?

Take Apple as an example. Buffett made well over $100bn in paper profit in Apple shares in under five years. Yet he had tens of billions of dollars of spare cash he did not invest. Why did he not use it to buy more Apple shares?

The answer is risk management. He has operated in the stock markets long enough to know that even the greatest companies can encounter unexpected difficulties. Buffett sometimes talks about being greedy — but he is never so greedy that he fails to diversify his holdings.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Christopher Ruane owns shares in Centrica. The Motley Fool UK has recommended Apple. 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

A person holding onto a fan of twenty pound notes
Investing Articles

3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 80%, this growth stock is a ‘no-brainer’ buy

Growth stocks have faced a torrid time recently. However, after falling 80% since its highs, this FinTech looks too cheap…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett is pouring money into stocks! Here’s a FTSE 100 pick I think he’d buy

Warren Buffett has been investing in several US stocks recently. Here's a FTSE 100 stock I think he'd also be…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon…

Read more »

Girl showing thumb up, excited about upcoming shopping
Investing Articles

Is now a good time to buy Tesco shares?

After a strong rally last year, the Tesco share price has stalled. Roland Head gives his view on investing in…

Read more »

The BT Tower looming above London's skyline
Investing Articles

3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

2 cheap FTSE 100 dividend shares! Should I buy?

These two FTSE 100 dividend shares offer terrific value for money, on paper. Should I load up on them today,…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

5 steps to target a monthly £300 passive income

With his eyes on a target of monthly passive income, here are five steps our writer would take to try…

Read more »