I listened to Warren Buffett when buying this stock!

This Fool used Warren Buffett’s expert advice as guidance when buying this stock. He explains why he wants to continue buying more shares.

| More on:
Fans of Warren Buffett taking his photo

Image source: The Motley Fool

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s plenty that retail investors can learn from Warren Buffett.

Many of us will never deal with the amounts of money he does. After all, he’s worth over $130bn. However, I still want to apply the guidelines Buffett sets out when buying a company to my portfolio.

One stock I think fits the bill is Games Workshop (LSE: GAW). I recently added to my position. Here’s why.

An industry frontrunner

Buffett says it’s smart to buy businesses that have strong competitive advantages. That’s why Berkshire Hathaway’s portfolio includes companies such as Apple. Looking at Games Workshop, I also think it ticks that box.

It manufactures tabletop miniatures. When it comes to competition, it doesn’t really have any. On top of that, it also has a loyal customer base. Users have spent large amounts of time and money on the hobby. As a result, the business is very effective at keeping people in its ecosystem.

A meaty yield

Buffett also likes to make passive income. If we look at his portfolio, a lot of the companies he owns have a healthy dividend yield. In fact, from just one of his holdings, Coca-Cola, he earns over a million pounds a day on average from dividend payments.

While it’s unlikely I’ll ever generate a second income that size, Games Workshop’s 4.6% yield is certainly enticing. By reinvesting the money I receive and benefitting from ‘dividend compounding’, I’ll also be able to build my wealth quicker.

What I like about the business is its dividend policy. Buffett, like my colleagues here at The Motley Fool, invests for the long term.

I’m wary of buying into yield traps. Just because a share has a high yield, that doesn’t always mean it’s sustainable. However, Games Workshop only uses “truly surplus cash” to pay shareholders.

Not without risks

That’s not to say investing in the stock doesn’t come without risks. I’m conscious competition will heat up as the tabletop wargaming industry continues to expand. There’s always the threat that this could hurt its ability to retain customers, which has already had to increase prices lately due to inflation.

With it trading on 22.2 times earnings, the stock could be deemed expensive. For comparison, the FTSE 250 average is around 12.

Buying the best

But that hasn’t deterred me. Buffett would rather pay a premium price for a high-quality company than a low price for a struggling business. With Games Workshop, I’m confident I’m getting quality.  

The firm has experienced impressive growth in its core revenues, but it isn’t resting on its laurels. Now it’s putting a focus on driving revenues for its licensing business.

Most notably, it has struck a deal with Amazon that will turn its Warhammer universe into film and TV content. This will no doubt help attract more attention to the brand.

In it for the long haul

I recently added to my position in Games Workshop. But if I had the spare cash, I’d happily snap up some more shares today. I’m excited to see where the business can continue going in the years and decades ahead.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Keough has positions in Apple and Games Workshop Group Plc. The Motley Fool UK has recommended Amazon, Apple, and Games Workshop Group Plc. 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

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

Investing freedom — but inside a pension

Strapped consumers might be cutting back on investing, but they’re still keeping up their pension contributions. The only problem? A…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Forget gold! I’d rather buy these 3 FTSE high-yielders in a Stocks and Shares ISA

Gold looks like a risky investment to me as the price hits an all-time high. I'm ignoring the fuss to…

Read more »

Young female business analyst looking at a graph chart while working from home
Growth Shares

This 55p UK stock could rise more than 300%, according to a City broker

This UK stock has fallen from above 800p to below 60p. But analysts at Citi believe it’s capable of a…

Read more »

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

I think this FTSE 250 trust has all the right ingredients to lock in long-term profits

Today I'm examining the prospects of a private equity investment trust on the FTSE 250 that caught my attention recently…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 under-the-radar UK shares investors should consider snapping up

Two UK shares have caught the eye of our writer. She explains why investors should be taking a closer look…

Read more »

Investing Articles

Are these 2 ultra-high-yielding income stocks a good buy for me?

These two income stocks often split the debate amongst investors. So what does our writer think of them as potential…

Read more »

Senior woman potting plant in garden at home
Investing Articles

5% yield! This dividend stock could be great for my retirement

Our writer explains why this dividend stock appeals to her as she’s investing to build wealth to enjoy in the…

Read more »

A young Asian woman holding up her index finger
Investing Articles

I’d aim for a second income of £1,000 a month with this super-reliable dividend stock

I think a great way to build a second income stream is by investing in dividend stocks via a Stocks…

Read more »