When it comes to investing to build wealth over time, Warren Buffett knows what he’s doing. The Berkshire Hathaway CEO has a net worth in excess of $130bn (£105bn).
In my view, a lot of investors could do well by listening to what the ‘Oracle of Omaha’ prescribes. And having no savings shouldn’t be an impediment to getting started.
Don’t overcomplicate things
One of most important pieces of advice is to avoid making things more complicated when they need to be. As Buffett puts it “I don’t look to jump over 7-foot bars. I look around for 1-foot bars I can step over”.
There are literally thousands of stocks available to buy from companies in all different sectors and geographies. Being able to compare all of them intelligently is nearly impossible.
Fortunately, investing well doesn’t necessarily involve comparing Helium One with Visa. In fact, according to Buffett, the key is carefully avoiding the comparisons that are just too difficult.
Instead, the Berkshire boss prefers to restrict his focus to companies that he can assess intelligently. And if nothing stands out as an opportunity, then he’s prepared to wait until it does.
Don’t lose money
Different investors have different abilities. Someone with an engineering background might be well-placed to assess Rolls-Royce, whereas a PhD biologist might have a better view on GSK.
The reason it’s important to stick to what can be intelligently evaluated is because this minimises the risk of loss. And the first rule – according to Buffett – is to avoid losing money.
In the short term, stock market volatility can result in an investment being worth less than what it was bought for and there’s not much anyone can do about that. But that’s not what Buffett means.
The kind of losses he aims to avoid are permanent losses due to problems with the underlying business. And the risk of this happening is higher with a business that is harder to understand.
A UK stock to consider buying
With all this in mind, one stock that stands out to me is JD Wetherspoon (LSE:JDW). The FTSE 250 pub chain is about as straightforward as they come in terms of an investment proposition.
Being based in the UK means there’s a significant danger of rising taxes – especially on alcohol. And while this is a risk that can’t be entirely ignored, the company does have a lot going for it.
Wetherspoon’s low prices to customers give it a clear point of differentiation. And its ability to charge lower prices is the result of its policy of owning its pubs outright, rather than leasing them.
This kind of business is – in my view – relatively uncomplicated. It has a model that has been proving resilient even in an economic downturn and I think is likely to do so in future.
Getting started
Buying shares in Wetherspoon – or any other UK stock – doesn’t require huge savings. In fact, even if I had no savings, I’d look to start investing as soon as possible.
Building an emergency fund to avoid having to sell shares at the wrong time is crucial. But doing this alongside investing carefully in stocks I can understand looks to me like the way to go.
