5 Warren Buffett tips that could improve my investment returns!

Christopher Ruane shares a handful of investing techniques used by Warren Buffett that he hopes can help him build wealth.

| More on:
Warren Buffett at a Berkshire Hathaway AGM

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.

Learning from a proven master can be rewarding when it comes to stock market investing. Billionaire Warren Buffett is open when it comes to sharing many of the techniques he has used over decades to build wealth.

Here are a handful I think could help me as I aim to build wealth in the stock market.

Stick to your knitting

Buffett emphasises the importance of sticking to what you know and understand, which he calls a ‘circle of competence‘. He reckons that what matters is not how big someone’s circle of competence is, but that they recognise it and stick to it.

That matters because putting money in something you do not understand is speculating, not investing.

Think as an investor, not a trader

Buffett does not simply see a share as a piece of paper that could be worth more in a month than it is now if the price moves up.

Instead, he invests for the long term. Buffett asks himself whether a business is one he would like to own overall. If so, buying shares in it can give him a stake even if only a modest one – and the same is true for me as a private investor.

Take Apple (NASDAQ: AAPL). The company’s share price has moved around a lot since Buffett started putting money into the firm under a decade ago. Over the past five years, for example, Apple stock has more than quadrupled.

Along the way, Buffett has bought some more shares and sold some too. But he remains a huge investor and it is by far his largest holding.

Looking at Apple as a business, it has a lot of the things Buffett has long looked for. It has a strong pricing power, a large potential market that is set to last, and a product ecosystem that helps customers keep buying more products and services over time.

Always consider risks as well as rewards

But even a company as successful as Apple faces risks, from the possibility of regulatory investigations into market competition to a swathe of nimble rivals keen to show consumers that they are now the new kids on the block, just as Apple once was.

Buffett is fastidious about considering risks when investing. Not only does he decide against many investments on the basis of their risk profile, he also keeps his portfolio diversified. That is a simple risk-management tool that can be applied even to a small portfolio.

Look for businesses with ‘moats’

Once people have an iPhone or Apple computer, they get used to the way it works, making it harder for competitors to attract them.

That gives Apple a competitive advantage, something that in turn gives it pricing power. And pricing power helps the tech giant generate large profits.

Think in decades, not weeks or months

Buffett says: “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes”.

That reflects the approach I discussed above. He sees himself as buying a stake in a business with strong long-term potential – so he wants to benefit from that potential.

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.

C Ruane has no position in any of the shares mentioned. 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.

More on Investing Articles

Investing Articles

Could this beaten-down UK growth stock be the next Rolls-Royce?

Mark Hartley feels Rolls shares have had their time and are running out of steam. Now he’s searching for the…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 10% in a month! What’s gone wrong with the BAE Systems share price?

Harvey Jones suspected all was going a bit too well for the BAE Systems share price. Things went wrong immediately…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Are BT shares still a bargain after climbing 30%?

BT shares are finally showing signs of life after years in the doldrums. Harvey Jones thinks this may point to…

Read more »

Investing Articles

£10k in an ISA? Here’s how I’d aim to generate a ton of passive income

I dream of escaping the shackles of a salary with financial independence and a steady stream of passive income. Here’s…

Read more »

Investing Articles

Are Burberry shares a bargain or a value trap?

Appearances can be misleading in the stock market. Shares that look like a bargain can turn out to be a…

Read more »

Investing Articles

How I’d target £17,673 passive income with just £100 a week

Our Foolish writer explains how he’d build a portfolio capable of generating a life-changing passive income with limited capital.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

If I’d put £20k into a FTSE All-Share tracker fund 10 years ago, here’s what I’d have now

A lot of UK investors have money in FTSE All-Share tracker funds. Here, Edward Sheldon looks at how these products…

Read more »

Investing Articles

How I’d invest £10k in a SIPP to target £28,000 annual passive income

Investing just £10k today in a SIPP could be the key to a chunky retirement income in the long run.…

Read more »