Here’s how I’d invest like Britain’s Warren Buffett in 2020

I plan to keep on learning from the great investors in 2020, and you can too.

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.

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.

When I say I’d invest like Britain’s Warren Buffett, I certainly don’t mean I see myself in that role. No, I’m thinking of Terry Smith, who founded Fundsmith in 2010 and has seen it grow to managing £18.8bn of investors’ cash.

He’s often dubbed the British Warren Buffett due to his similar investing style, investing for the long-term in “high quality businesses that can sustain a high return on operating capital employed,” while eliminating short-term buying and selling to minimize trading costs. I can certainly see the similarity with the chap from Omaha.

UK’s biggest

The Fundsmith Equity Fund is the largest in the UK, and it doesn’t charge performance fees.

A formative day in my investing career came many years ago, when an investors’ conference I attended featured both Terry Smith and the late Jim Slater as speakers. Slater’s growth investing book, The Zulu Principle, was one of the first I read, and I’d also been reading Smith’s Accounting for Growth.

The latter was an exposé of the creative ways companies can manipulate their accounts to hide debts, boost apparent profits, and generally appear to be in far better financial health than they actually are. It was quite a revelation, and it lost Smith his City job at the time, but I reckon it’s helped clean up what can be a seriously dirty business.

Complexity

One thing it taught me is to steer well clear of companies with complicated accounts – things like multiple levels of holding companies dealing with each other, debt and capital moving via chains of intermediaries, and other practices that help make the books pretty much impenetrable.

That was one of the big problems with Quindell (later renamed Watchstone) a few years ago, which ended up being forced to restate several years of accounts (downwards, of course).

It’s also the reason I’ll never buy shares in NMC Health after the serious accusations made by shorting outfit Muddy Waters. Even if the allegations prove untrue, they have exposed opaque accounting practices and less than ideal corporate governance – had the accounts been transparent, things would be abundantly clear with no reason for mystery and controversy.

Doing it

So that’s the first way I’ll try to emulate Terry Smith in 2020, by only investing in companies whose accounting practices are open and transparent. That’s easy to say, but perhaps not so easy to do. For a start, I think I’ll stick to companies practicing and headquartered in countries with better accounting rules. And I’ll run a mile as soon as any doubts are raised.

My other approach is really just to follow the Buffett style strategy that I’ve attempted for years, and that’s to always look for profitable and strongly cash generative prospects that satisfy his “wonderful company at a fair price” criterion.

Who knows, I might even uncover the odd gem that satisfies both the Buffett/Smith approach and Slater’s growth strategy – and what a find that would be. At any rate, it means no more risks like Sirius Minerals for me.

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.

Alan Oscroft owns shares of Sirius Minerals. The Motley Fool UK owns shares of and has recommended NMC Health. 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 the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

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

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

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

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »