5 pieces of Warren Buffett wisdom for new investors – and very old ones!

Christopher Ruane identifies a handful of lessons from billionaire investing legend Warren Buffett he uses himself in the stock market.

| 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.

Billionaire investor Warren Buffett started investing in the stock market as a schoolboy and is still at it decades later.

Over that time, he has accumulated a lot of investing wisdom.

Here are five pieces of that Warren Buffett approach that I try to follow and think could help investors both old and new!

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

1. Think in terms of buying a slice of a business

Many investors obsess about numbers.

Numbers are important, but they are only a representation of what a business is and how it is performing.

Buffett thinks of a share as a stake in a business. So, while he certainly does look at the numbers, he also asks what I think can be a very useful question: “Is this a business I would like to own?

If not, why own even a small piece of it?

2. Simple and proven can be a lucrative strategy

Many of Buffett’s big investments are in companies that have proved themselves over decades and have easy-to-understand business models, such as Coca-Cola (NYSE: KO).

Some new investors believe that the way to make money is investing in emerging, complex businesses. Buffett’s more simple approach appeals to me as I like to be able to assess what I am investing in to judge whether I am getting what seems like good value.

Coca-Cola, incidentally, has been a goldmine for Buffett. Not only is the stake now worth far more than he paid for it, but it also generates hundreds of millions of pounds annually in dividends – a key form of passive income

3. Watching without buying can be a smart move

It can be tempting, when excited about a company’s business case, to buy immediately without paying too much attention to valuation.

That can be a costly mistake. A good business does not always make for a good investment.

So Warren Buffett sometimes follows companies for years, or even decades, before deciding to invest. In the stock market, timing is not everything – but it is a very important thing.

4. Too much of a good thing can be a bad thing

Although Coca-Cola is a sizeable shareholding of Buffett’s, he has quite a few others too.

He could have put all of his money into Coca-Cola shares and done very well. But while we know that now, that is with the benefit of hindsight.

Any company faces risks that can sink its share price. Maybe changing diets will lead consumers to move away from sugary drinks, for example, or ingredient inflation will squeeze Coca-Cola’s profit margins. That is still a risk, in my view.

By spreading his portfolio, Buffett ensures that a problem for Coca-Cola (or any other investment) ought to have a limited impact overall.

5. Reinvesting gains to invest more

So far though, Coca-Cola has created a lot of wealth for Buffett.

It has a large target market, a strong competitive advantage thanks to things like its branding, proprietary formula and extensive distribution network and has raised its dividend annually for decades.

What has Warren Buffett done with those billions of pounds in dividends?

He has reinvested them. Putting profits to work like that can lead to higher profits in future. That is a simple but powerful technique known as compounding, that can be used by investors at any level.

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.

C Ruane 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 »