When looking for inspiration as an investor, there isn’t a better person to start than Warren Buffett. Now aged 92, he’s been a titan of the market for decades, succeeding through the best and worst times in the market through his key principles of investing.
Let’s go through how I aim to be successful in the coming decades by following these principles.
Who is Warren Buffett?
Warren Buffett is the CEO of Berkshire Hathaway, valued at $644bn. Nicknamed the Oracle of Omaha, he is a widely respected giant of the investing world, but started his investing journey in 1942 with just a few hundred dollars.
The Buffett style
With decades of experience, Warren Buffett knows his style. He carefully researches undervalued companies with quality business models, and is willing to hold the investment for decades, until either the fundamentals of the company or the reason for investing changes.
Almost 50% of the Berkshire Hathaway fund is centred around Apple and Bank of America. Investors should always look to diversify over the long-term, but when Warren Buffett finds a quality company at a great price, he is not afraid of investing heavily.
Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.
– Warren Buffett
How can I invest like him?
Investors don’t need billions of dollars to invest like Warren Buffet. It can be as simple as finding quality companies below their intrinsic value, and holding onto this investment regardless of volatility in the market. By understanding the fair value of shares, and building in a suitable margin of safety, investors can be confident that returns will come.
If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.
– Warren Buffett
For a commitment this long, it needs to be well-researched. This means understanding what the company does, why it is unique, and how the business fundamentals are trending.
Warren Buffet’s style of research is all about understanding his own circle of competence. Why attempt to understand a new area when sticking to what he knows works so effectively? For some, this circle of competence could include understanding the potential impacts of a product, or how a service might be ahead of the competition.
Investors hoping to become the next Buffett need to also be comfortable going against the crowd. When times are good, and markets are soaring, it may be tempting to change strategy. However, when the music stops, the price declines can be just as extreme. As a result, steady growth can be a much more sustainable strategy.
This approach is a cornerstone of Buffett’s success:
Be fearful when others are greedy. Be greedy when others are fearful.
Could being a value investor work for me?
Being a value investor like Warren Buffett isn’t always easy. It can be unfashionable to avoid the newest, most exciting companies, but thanks to compound interest, consistently buying companies for less than their value can be incredibly lucrative. One of Buffett’s largest holdings, Coca-Cola has been in his portfolio for over 40 years. Since first buying in 1987, this investment has returned an incredible 5,900%.
If you can stick to one of Warren Buffett’s best known quotes, you likely won’t go too far wrong in the market: “
Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.
