Warren Buffett’s firm, Berkshire Hathaway, is used to investing millions or even billions at a time. Sadly, most investors don’t have this privilege. And yet, the methods he and his team use when evaluating opportunities can easily be applied to far smaller sums. Even with just £100 a month, it’s possible to use Buffett’s tactics and target higher returns. Here’s how.
Slow and steady wins the race
Despite having billions on his balance sheet, Buffett’s enormous cash pile tends to grow faster than he can spend it. And this is intentional. While kicking off an investing journey can be exciting, acting too quickly can backfire and potentially destroy wealth.
He has two golden rules when it comes to investments: “The first rule of an investment is don’t lose. And the second rule of an investment is don’t forget the first rule”.
Obviously, even the most informed investor is going to make mistakes along the way. Buffett certainly has, and he’ll probably do so again. But the point he is making is that investors should understand completely where they’re putting their hard-earned money.
That means understanding both the risks as well as the rewards. And only acting if the latter sufficiently compensates the former to a high level of probability. In other words, he only invests in the companies that he believes have an exceptionally high chance of success.
Finding winning stocks
There are a lot of factors to consider when it comes to stock picking. And because of the nuances and unique circumstances each business can find itself in, there’s no single magic formula despite what many online ‘gurus’ selling a course promise.
Instead, stock pickers need to dig deep into both the qualitative and quantitative characteristics of each business. A lot of information can be uncovered just by going through the regulatory filings each stock has to publish, such as annual reports, trading updates, and other announcements.
However, this often won’t be enough since firms rarely give information beyond what’s required by regulators. For these additional details, investors may have to turn to respectable financial news publications, high-quality industry reports, or even online investing communities. While the latter can be a cesspit of misinformation, it often highlights opposing views from other investors that may be justified.
As for the traits Buffett searches for, there are many. However, two he’s repeatedly mentioned in interviews are a cash-rich balance sheet with low levels of debt and distinct competitive advantages that empower the company to outperform rivals.
Investing £100 a month
Regardless of how much capital an investor has available each month, Buffett’s strategy remains the same. He’s consistently buying top-notch businesses with compelling financials and long-term prospects.
It can take time to uncover such opportunities. But adopting this strategy has made him immensely wealthy. And while replicating his impressive returns is no easy feat, I believe adopting his investing approach can put investors on the path to superior long-term wealth.
