Investing can be distressing for beginners, especially when a lot of money is involved. It’s difficult to know who to trust, so I think it’s best to take advice from well-known investors like Warren Buffett.
The Oracle of Omaha has successfully built a multibillion-dollar empire using rules that he adheres to religiously.
Here are two I believe could help me be successful too.
Invest for the long term
One of Buffett’s most famous quotes is: “Our favourite holding period is forever.”
Of course, holding until death might not seem like the best way to enjoy returns, so this should be taken with a pinch of salt. This little piece of advice simply means to remain invested long term. Trying to profit from constantly buying and selling seldom works better than holding good stocks for decades.
Panic-selling (selling when a stock drops) is often a mistake, as the stock often recovers to even higher highs. But that doesn’t mean never sell – even Buffett sells stocks when he feels the company is no longer a good investment.
The trick is choosing the right stocks. Which takes us to his next gem of wisdom.
Invest in what you know
Another one of the Oracle’s famous quotes is: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
He wrote this in a letter to his shareholders, clarifying that they should only invest in companies that are easy to understand. They should also be almost guaranteed to have a higher share price in 10 years from now.
In other words, don’t jump into a stock because it’s the flavour of the month and might deliver some quick gains. Investors should look for stocks in an industry they understand (maybe the one they work in) and carefully evaluate the long-term prospects.
One stock that fits the bill
One UK stock that I believe fits these criteria is Unilever (LSE:ULVR). It’s been on my radar for quite some time now but I’ve been distracted by more promising growth shares. However, Unilever is just the kind of solid, reliable company with potential for long-term growth.
It’s not exactly an industry I work in but it manufactures and markets a ton of household brands that I use daily. Think Dove soap, Flora margarine, and Surf washing powder. These are consumables that are likely to be in high demand for the indefinite future.
While the share price has grown 532% in the past 30 years, recent performance has been less impressive. The share price has declined since 2019, down 8% in the past five years. Inflation has hit the firm hard, forcing it to raise prices and driving some (but not all) customers to cheaper alternatives. And earnings per share (EPS) has declined by almost 6% per year for the past five years.
But I have faith in the stock long term. Unilever has been doing well to retain customers at higher prices recently. Interest rate cuts that may come this year should see consumers return to their favourite brands, helping to reverse declining profits. I think I’ve put it off too long so I’ll be adding it to my portfolio when I have cash.
I’ll hold for the long term and invest in what I know!
