Don’t know where to start investing? I follow the Warren Buffett method

Our writer highlights the different ways in which Warren Buffett has inspired him to try to build significant stock market riches.

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Warren Buffett at a Berkshire Hathaway AGM

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Navigating the world of investing takes considerable skill, and Warren Buffett is arguably the best person for me to listen to on how to do it right. After all, his net worth is $130bn. So how did he make his money, and how can I attempt to follow suit?

Let’s be honest, a net worth that large is unlikely for almost everyone. But with the right mindset, millions don’t seem unachievable to someone like me starting as early as possible.

Time in the market

Buffett is famous for long-term investing. Usually, he’ll hold a company for over a decade, and people always quote him saying: “The best holding period is forever”.

Through his public speeches, he taught me about the notion of value investing. It requires buying great companies at a low price. For example, Buffett bought Coca-Cola shares in 1988 after the stock market crash of 1987. The price at that time was around $2.73 per share, adjusted for stock splits. Today, it’s risen approximately 2,134% to $61.

Buffett’s purchase of the shares was a significant moment in stock market history, and the investment became one of his longest and most famous holdings. He still owns his stake in the company and has even added to it over time. Throughout the years, he’s always praised Coca-Cola, particularly for its strong dividend payments.

Apple shares

Today, his biggest holding is Apple (NASDAQ:AAPL), representing a massive 47.9% of his firm, Berkshire Hathaway‘s, portfolio.

I’m also an Apple shareholder, and there are a number of reasons why I love the company. For example, its product set is almost unbeatable in my eyes. I’m an avid technology investor and fan, and Apple constantly manages to impress me with how user-friendly the gadgets are.

What’s more, the business locks customers into its technology ecosystem, and this is what Buffett would call a moat in investing. Just like a castle is protected by the water around it, Apple is protected by its products and services working much better together than with competitors’ alternatives.

But does Buffett see the risks in Apple’s financials? Well, he bought it early on when it wasn’t so pricey. Today, one of my concerns is its price-to-earnings ratio of 28. That’s not to mention a balance sheet with quite a lot of debt.

Of course, the investing master knows what he’s doing. Apple is hugely profitable and is in the top 5% of companies in its industry for its enviable profit margins.

Also, despite its giant size, it’s still growing fast. Over the past three years, the company has compounded its revenue at 15.7% per year.

I don’t overcomplicate things

If I allow it, investing can be an impenetrable maze of ratios, financial statements and economic analysis. However, it doesn’t have to be that difficult.

If I buy businesses that are evidently top of their industries, I think I can achieve exceptional returns. The great trick is patience.

In the words of the late, great Charlie Munger, Buffett’s long-term partner and right-hand man: “It’s so simple. You spend less than you earn. Invest shrewdly, and avoid toxic people and toxic activities, and try and keep learning all your life“.

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 assessed. Consider taking independent financial advice.

Oliver Rodzianko has positions in Apple. The Motley Fool UK has recommended Apple. 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.

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