The billionaire investor Warren Buffett is used to dealing with large sums of money. Very large sums of money,
Indeed, one reason his company Berkshire Hathaway has been sitting on a cash pile of many billions of pounds over recent years is that Buffett thinks it is hard to find enough good deals that are big enough to move the needle for the company.
But it was not always like that. In fact, Warren Buffett first started in the stock market as a schoolboy, using some pocket money he had earned from doing a paper round.
So, could someone with a few hundred pounds to invest today take an approach inspired by the Sage of Omaha when it comes to investing in the stock market?
Sticking to some basic principles
I think they could.
Although Berkshire owns a lot of businesses outright, it also owns stakes in companies such as Apple (NASDAQ: AAPL) and Coca-Cola, in the form of shares. A small investor can buy shares easily enough on the stock market.
With his decades of market experience, Warren Buffett knows all too well how important it is for an investor to stay diversified across different holdings, as a way of reducing their risk.
£500 is enough for someone to diversify across several different shares.
On a fairly modest amount, though, minimum commissions and share dealing fees can soon add up. Warren Buffett keeps a close eye on costs.
I think it makes sense for a small private investor to do the same when it comes to selecting a share-dealing platform such as a Stocks and Shares ISA or share-dealing account.
On the hunt for individual shares
Warren Buffett has said before that he thinks many private investors with a small sum of money to invest ought to consider buying into a fund that tracks a stock index, such as the S&P 500 or FTSE 100.
Personally, though, I prefer to do what Buffett himself does and buy individual shares in what I see as great companies.
The reason why can be illustrated by examining Buffett’s own investment in Apple over the past decade. That has made Berkshire tens of billions of dollars.
Some of that has been from dividends, but most of the gains are due to Apple’s stock price gains.
Buffett likes strong brands that give a company pricing power. Apple certainly has that. He likes business models that are simple to understand. Again, Apple offers that.
Its proprietary technology, service ecosystem, and large installed user base are all competitive advantages. In fact, at the right price, I would be happy to buy Apple stock for my portfolio, as I have done in the past.
Currently, though, the share price is too high for my tastes so I have no plans to invest in Apple for now.
A high share price puts me off because even great companies can run into problems. Growing completion in the phone sector is a risk to both revenues and profitability for the tech giant. I also see a risk that a weak economy could hurt demand for pricey smartphones.
Still, I continue to use Warren Buffett’s approach as I scour the stock market hunting for great businesses that I think are more attractively valued than Apple!
