Warren Buffett didn’t get to where he is without having a set of rock-solid investing principles.
The billionaire investor and head of Berkshire Hathaway Inc is one of the poster boys of sensible investing. And with good reason: according to Forbes, his wealth stands at an eye-popping $96.4bn.
I won’t fool myself into thinking I’ll have the same record of success as Buffett. But I do believe that by following some of his key tips I could make myself much richer.
Here is how I try to buy UK shares using Warren Buffett’s methods.
Looking for value
I love scouring the stock market for bargains and have been busy dip-buying during the recent stock market correction.
Market volatility in 2022 means that many top stocks carry shockingly low valuations. The panic currently engulfing stock markets means that robust companies are being sold off along with the more vulnerable.
Buffett’s approach to value investing doesn’t just involve searching for stocks on low P/E ratios, though. The legendary investor scours Wall Street for companies that are trading below their intrinsic value.
This means he considers their overall potential as a business and how much profit they might make over the long term. This approach has enabled him to make enormous profits for decades.
Finding stocks with competitive advantages
Another Buffett trick is to find companies that have an edge over the competition. These are known as economic moats, a term the Berkshire Hathaway founder coined himself. And they take a variety of forms.
An example of this is strong brand power that can help a stock grab a large share of the market. Buffett’s decision to load up on Coca-Cola shares (Berkshire Hathaway owns about 10% of the soft drinks giant) illustrates the importance of strong branding to him. And Coca-Cola has proved to be one of his most lucrative investments, too.
Other economic moats include economies of scale that keep costs down, operating in an industry that requires large set-up costs for competitors, and high switching costs for customers.
Buying on the dip
It takes bravery to continue investing in UK shares when the economic landscape is deteriorating rapidly. The picture is particularly perilous today, too, with rampant inflation, aggressive central bank action, the war in Ukraine, and a Covid-19 resurgence all clouding the outlook.
However, I’m still sticking to my investing plan and still buying stocks today. I think it might seriously boost the returns I make over the long term.
Perhaps Buffett’s most quoted piece of advice is to “be fearful when others are greedy, and greedy when others are fearful”. And by buying quality stocks at current low prices I could make massive capital gains as they rebound during any stock market recovery.
Listening to stock market experts is a great way to remain an effective investor in confusing times like these. I certainly think these few Warren Buffett principles could help me get richer.
