Warren Buffett returns 20% a year. Can I do the same?

Fabled investor Warren Buffett has delivered consistently above average returns for decades. This Fool hopes to emulate his success.

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Warren Buffett is an investing legend. To be fair, with his company Berkshire Hathaway averaging an annual return of around 20%, it’s easy to see why.

It goes without saying, returns of that stature are amazing. That’s double the average return of the S&P 500. When it comes to beating the market, Buffett is the man to turn to.

So, I’m doing exactly that. If he can do it, why can’t I? I’m aware that it’s an incredibly difficult achievement. But I want to at least try and get close to it. Here’s my plan.

The major keys

I could write an entire essay about the lessons that investors can take away from the invaluable advice Buffett has provided over the years. However, there are a few imperative ones that I’m copying from the ‘Oracle of Omaha’.

When I started my investment journey, Buffett was one of the first people I read about. These are two tips that have stuck with me the whole time.

The first is the power of time. The Oracle has been investing for over eight decades. He’s living proof that having cash tied up in the stock market for as long as possible is the best way to get rewarded.

Second, he targets companies with moats. These are businesses with competitive advantages in their industry. Having one makes a large difference when it comes to performing strongly over years and decades.

My plan to get there

I’ve applied these two lessons to my portfolio. It’s the reason I own, and plan to hold for a very long time, companies such as Games Workshop (LSE: GAW). Let me break it down.

To start, the stock has been a stellar performer in recent years. In the last five years, it has returned 217.3%. That’s over 43% a year on average. In the last decade, it has risen a remarkable 1,888.1%.

While past performance is no indication of future returns, I’m bullish that the business can keep generating these impressive returns in the long run.

One reason for this relates to the second Buffett tip I highlighted. Games Workshop is the frontrunner in the miniature and tabletop gaming industry. In terms of competition, it doesn’t really have any. That’s just one of the reasons why it has posted 17% annualised revenue growth over the last five years.

Trading at 23.7 times earnings, the stock looks slightly expensive. We’re in a cost-of-living crisis too. That could harm sales.

But Buffett advocates buying quality companies at fair prices rather than fair companies at wonderful prices. With Games Workshop, I feel like I’m getting quality.

What’s more, it actually posted record profit and revenue growth for the 26 weeks to 26 November 2023 despite tough trading conditions. That again highlights its resilience.

Can I do the same?

Achieving a 20% return every year on average may be viewed as a long shot. But by following Buffett, I want to get as close to it as possible.

I believe that companies such as Games Workshop could help me get there.

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.

Charlie Keough has positions in Games Workshop Group Plc. The Motley Fool UK has recommended 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.

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