How I’d invest £5k in an ISA the Warren Buffett way

Mega-billionaire Warren Buffett is my hero for many reasons, few of them financial. Here are four Buffett lessons I’d use to invest £5k in an ISA today.

Fans of Warren Buffett taking his photo

Image source: The Motley Fool

The first reason I admire Warren Buffett is he is renowned for being one of the world’s most successful investors. The second reason I look up to the Oracle of Omaha is he has personal wealth exceeding $102bn, making him the world’s fifth-richest man.

The third reason I’m a huge fan of Warren Buffett is, together with Bill Gates, he is one of the world’s most generous philanthropists. ‘Uncle Warren’ has already donated tens of billions of dollars to good causes — and he intends to give away 99% of his entire wealth before his death. And the fourth reason I worship Warren is for the homespun, folksy, and yet powerful wisdom he freely shares with the world.

How I’d invest today the Warren Buffett way

If I were starting out today as a newbie investor, here are four quotes from Warren Buffett I’d use to invest £5,000 into an ISA:

1. “The worst investment you can have is cash. Cash is going to become worth less over time”.

Currently, UK inflation (the rising cost of living) is running hot at 9.4% a year. Over time, rising prices will erode the value of my savings. Therefore, I would put them to work in the stock market, by buying fairly valued or cheap shares in great businesses. And I’ve been doing this aggressively since June.

2. “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”.

In the first half of 2022, as global share prices fell, I invested very little into stocks and shares. But Warren Buffett showed me that it’s okay to pay fair or even premium prices to invest in quality companies. For example, I recently bought into America’s second-largest supermarket chain, after its shares crashed almost 50% from their 52-week high. It’s a great corporation and I think I bought its shares at a bargain price.

3. “Never invest in a business you cannot understand”.

Since 29 June, my wife and I have invested a chunk of cash into 10 new shares. These include well-known UK banks, insurance companies, a housebuilder, and a global miner. To me, these are all simple, easy-to-grasp firms with clear and simple business plans. What’s more, all generate plenty of cash flow and pay generous dividends to shareholders. No loss-making, ‘jam tomorrow’ tech stocks for me, thank you.

4. “The best chance to deploy capital is when things are going down”.

Warren Buffett made this comment in an interview about share buybacks in February 2018. For me, this approach is a key part of my investing strategy. I love buying market-down shares at discounted prices, much as I enjoy buying discounted consumer goods. Indeed, many of the 10 shares we bought lately had fallen 25% to 50% from their previous highs. As an old-school northerner, I just love a bargain, me.

To sum up, my investing goal is to — as Warren Buffett said way back in 1991 — “Just buy something for less than it’s worth”. By buying shares inside an ISA and holding them for years, my cash dividends and capital gains (selling profits) can snowball tax-free. And this boring, safe approach to ISA investing has served me well over the last 35 years!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

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.

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

Mixed-race female couple enjoying themselves on a walk
Investing Articles

UK shares: 1 burgeoning tech stock to buy for returns and long-term growth!

Jabran Khan is looking for the best UK shares to buy for his holdings that provide excellent returns and growth…

Read more »

Black father holding daughter in a field of cows
Investing Articles

2 FTSE 100 shares I’d buy for lifelong passive income!

These FTSE 100 shares have proved to be excellent dividend stocks for many years. Here's why I think they'll continue…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

1 cheap penny stock that boosts passive income and has great growth prospects!

This Fool likes this penny stock that currently looks good value for money, has an enticing dividend yield, and growth…

Read more »

Sun setting over a traditional British neighbourhood.
Investing Articles

Will the Taylor Wimpey share price rebound soon?

The Taylor Wimpey share price has jumped 10% since it bottomed last month. But will it continue its rally and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Should I buy this growth stock at £10?

The ASOS share price has tumbled to its lowest price in the last 10 years. Surely at £10 per share,…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is the bear market in stocks over? I fear not!

After the worst first-half bear market in 52 years, US stocks have rebounded in the past month. But what should…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Is this FTSE 250 stock one of the best to buy for consistent growth and returns?

Jabran Khan takes a look at whether this FTSE 250 tech stock could be a good addition to his portfolio…

Read more »

Girl and father putting coin into piggy bank, sitting on sofa at home
Investing Articles

Here’s why I’d buy Legal & General shares to bag 7.5% dividends today

Legal & General shares are picking up, as the company reaches the halfway stage in its five-year cash and dividend…

Read more »