5 crucial Warren Buffett investing habits and a stock to consider buying now

Here’s a UK stock idea that looks like it’s offering the kind of good value sought by US billionaire investor Warren Buffett.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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.

Warren Buffett’s first rule for investors is “never lose money”. That sounds like a joke, right? Nobody sets out to lose cash.

But many other top money managers agree. The general advice is to focus on risk management above all else. Buffett has five habits that help him do that.

Research and analysis 

One part of managing risk involves doing careful research and analysis before buying shares. 

Should you invest £1,000 in The Prs Reit Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if The Prs Reit Plc made the list?

See the 6 stocks

Buffett’s known for poring over company reports daily. Maybe such dedication’s beyond the stamina of most. But I reckon it’s important to at least read the news flowing from the companies that interest us. 

Follow the cash

Company profits are open to interpretation. However, cash flowing in and out of a business can be a reliable guide. Buffett once said he focuses on cash flow when analysing businesses. To me, that means the habit looks like part of his risk management process. So company cash flow statements can be an investor’s friend.

Valuation

A focus on business valuations is a big part of Buffett’s process. Investment outcomes can be poor if the stock’s too expensive. He never intentionally overpays, and the habit helps him to manage risk.

Sensible position sizing

There’s often the temptation to put too much money into one stock. But sizing stock positions correctly can reduce risk.

A bit of diversification between several investments can help manage risk too. Nevertheless, effective diversification requires the Goldilocks approach — not too much and not too little. Buffett always has several investments on the go.

Stop losses

If all else fails, good risk management can mean stopping losses and selling. Many successful investors do it, including Buffett.  In recent years he sold his losing Tesco investment and his underwater shares in US airline companies. 

The tactic makes sense. If a stock drops by 50% it takes a 100% move to return to breakeven. So it may be a good idea to sell before a loss gets as big as 50%.

For long-term investors, I like UK investor Lord John Lee’s approach. He said he stops losses at 20%. However, different strategies will likely require varying stop-loss levels to make sense of an investor’s particular investment process.

A stock worth a closer look

One company that’s worth investors’ consideration now is Phoenix Group (LSE: PHNX).

Created with Highcharts 11.4.3Phoenix Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The company is the UK’s largest long-term savings and retirement business. Over many years it’s been acquiring and managing life and pension funds when they’ve closed to new business. The strategy has been a nice earner for the company and the success shows in the impressive multi-year dividend record.

However, the business is part of the cyclical financial sector and the share price may be volatile. If that happens, capital losses could neutralise income gains from the dividend. 

Nevertheless, with the stock in the ballpark of 500p, the forward-looking dividend yield for 2025 is just over a mighty 11%. So that’s an attention-grabbing reason to undertake deeper research and consideration.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Here’s the dividend forecast for Rolls-Royce shares as Trump rocks the markets

Rolls-Royce shares have joined in the volatility over the past week. However, with the direction being largely downwards, the dividend…

Read more »

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

Dividend yields of up to 11%! Here are 3 UK passive income stocks to consider

Searching for ways to supercharge your passive income with UK dividend stocks? Here are three that have grabbed our writer's…

Read more »

Young Caucasian woman at the street withdrawing money at the ATM
Investing Articles

£10,000 invested in NatWest shares at the start of 2025 is now worth…

NatWest shares surged into 2025, but things have become a little more complicated in recent weeks. Dr James Fox explores.

Read more »

Investing For Beginners

Why the FTSE 250 could outperform the FTSE 100 for the rest of the year

Jon Smith explains why the FTSE 250 could do better than its big brother when factoring in domestic exposure and…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Tariff fears send the Lloyds share price tumbling, but the dividend yield is climbing

Just when the Lloyds Banking Group share price had been rising steadily, along comes a global upheaval to knock it…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Here’s how a stock market crash could help an investor retire years early

A stock market crash can be alarming -- but for the well-prepared investor, it can also be an exceptional opportunity…

Read more »

Investing Articles

1 key fact to remember in this stock market correction

This writer takes a look at a FTSE 100 investment trust that is catching his eye after the recent massive…

Read more »

Investing Articles

I was wrong about the Tesla stock price!

Tesla stock's been affected more than most by ‘Liberation Day’. But our writer has other concerns about Elon Musk’s company.

Read more »