As an investor keen on learning, I look up to Warren Buffett and attempt to learn from him. I purchased Howden Joinery Group (LSE: HWDN) shares some time ago. Here’s how the Sage of Omaha helped me in this instance.
How Warren Buffett helped me
First, Buffett has said, “In the business world, the rearview mirror is always clearer than the windshield”. This tells me that performance history and fundamentals in the past can help paint a picture of the direction of a business going forward. However, I do understand that past performance is not a guarantee of the future.
Second, “Never invest in a business you cannot understand”. I would never profess to be an expert in construction, however, another of Buffett’s principles is that of doing lots of due diligence. I did this into Howden as a business and the construction industry in general.
Next, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”. I believe Howden can continue to perform well for the next 10 years. This is because demand for construction products is only increasing due to a chronic housing shortage.
Finally, “If a business does well, the stock eventually follows”. Howden shares have been on an upward trajectory for some time. In fact, over a five-year period, they’re up nearly 70%.
My investment
I added Howden shares to my holdings approximately 18 months ago after listening to Warren Buffett’s lessons and doing my own homework.
Since I purchased the shares, I have seen my investment grow. The shares are up 20% from 613p (the price at which I purchased the shares) to current levels. Over a 12-month period, they’re up 12%. It is worth mentioning that many shares in recent months have struggled due to macroeconomic headwinds. These include soaring inflation and rising interest rates.
Howden shares boost my passive income, and the current dividend yield sits at 2.8%. I expect this to grow in line with the business. However, I do understand that dividends are never guaranteed.
Next, I would be willing to add further shares to my holdings. The shares still look decent value for money on a price-to-earnings ratio of 11.
Earlier I mentioned Warren Buffett talked about looking at a firm’s past. For Howden, I can see it has grown revenue and profit for the past three years in a row. Furthermore, its store presence and customer numbers have steadily increased in the same period.
From a bearish perspective, I do understand that construction projects, including kitchen renovations, which Howden is best known for, may not be a priority. This is due to the cost-of-living crisis that has developed. This could result in some short-term pain for Howden in terms of demand on the consumer side. I think this should be offset by rising demand on the trade side where it sells products to contractors and construction businesses. Next, rising costs could also squeeze profit margins for the business. This could impact any passive income I hope to make.
Warren Buffett did not personally help me pick this stock, but his lessons went a long way in my decision making.
