How I’d invest £500 with 3 lessons from billionaire Warren Buffett

Warren Buffett is not afraid to invest against the crowd and often achieves outstanding results. Here’s how I reckon he does it.

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.

Fans of Warren Buffett taking his photo

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.

sdf

Billionaire US investor Warren Buffett once said: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

And despite market weakness, he’s been true to his word and loading up with several stocks this year. For example, he’s recently been building up a big position in Occidental Petroleum. The company carries out exploration and production activities in the US, the Middle East and North Africa.

Ignoring the market ‘noise’

However, the price of oil fell back a bit from its recent highs over the past few days. And one theory is that falling commodity prices could be signalling a weakening general economic activity ahead.

But such macro-economic considerations have not deterred Buffett from acting on his conviction about Occidental Petroleum. We can’t be certain what he sees in the business. But most of his stock purchases occur because of the presence of value. 

My guess is he has identified the business as being a quality operator in its sector with a long growth runway ahead. And he probably bought the stock now because the valuation offers him a fair price. Based on most of his activity over many years, that’s the way it often goes.

And I don’t think it’s important what business Buffett has chosen to buy. The first lesson I draw from his recent actions is that he has the courage of his convictions. He’s done his research and analysis, formed an opinion, and acted on it. And that’s despite all the headlines and opinions of others.

Investing against the crowd

Indeed, it’s interesting how often Buffett has gone against the crowd during his investing career. And it’s even more interesting that he’s one of the most successful investors on the planet. But I suspect one of the out-in-the-open ‘secrets’ to his calm approach is ‘focus’. He’s used the word many times and reckons it’s an important skill to master.

It looks like Buffett has narrowed his focus to Occidental Petroleum despite all the market ‘noise’. And the need to focus is the second lesson I’d use to help me invest £500 right now.

Third, I’d aim to learn the value of having patience after buying shares in a company. Buffett reckons time is our friend if we hold the stocks of what he describes as wonderful businesses. And he’s said in the past he’s prepared to wait indefinitely for a company’s performance and potential to deliver him a decent return on his investment. 

Yet even if I apply these three lessons to my investing strategy there’s still no guarantee of a positive long-term investment outcome. Indeed, all shares carry risks as well as positive potential. Nevertheless, observing Buffett in action is helpful to me and I’m using his lessons right now to help me invest better.

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.

Kevin Godbold 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.

More on Investing Articles

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing For Beginners

Up 10% in a day, this FTSE 250 stock still looks undervalued to me

Jon Smith explains why a FTSE 250 finance stock has soared higher and flags up reasons why this might not…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

Rolls-Royce shares are close to reaching £10. Is it too late to buy?

Rolls-Royce shares have come a long way. With the price within spitting distance of £10, our writer considers whether he…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

With H1 profits back on track, is this FTSE 250 housebuilder ready to bounce back?

Operating profits are down 22% at Vistry. But as cost issues give way to government support, could the FTSE 250…

Read more »

Investing Articles

2 fantastic UK growth stocks to consider for a Stocks and Shares ISA

Looking for opportunities for a Stocks and Shares ISA portfolio? Our writer shares two ideas from the London Stock Exchange.

Read more »

DIVIDEND YIELD text written on a notebook with chart
Investing Articles

Investors could target £8,840 of annual dividend income from 5,851 shares in this FTSE 250 high-yield star!

Shares in this FTSE 250 stock generate a much higher dividend yield than the index average and can produce potentially…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

HSBC’s share price has dipped 5% to just over £9, so should I buy more right now?

HSBC’s share price has dipped in recently, but this could signal a bargain to be had. I ran the key…

Read more »

many happy international football fans watching tv
Investing Articles

Is this FTSE 250 stock gearing up to more than double its market cap by October?

Our writer considers the implications of a recent stock market announcement for the share price of this FTSE 250 retailer.…

Read more »

Inflation in newspapers
Investing Articles

3 overlooked UK shares growing dividends faster than inflation

Mark Hartley highlights three lesser-known UK shares offering inflation-beating dividends, while noting key risks investors should watch.

Read more »