The Motley Fool

Value investing! I’d choose the Warren Buffett way to get rich and retire early

Pension pots are being stretched as an ageing population puts strain on the coffers. Job security is less certain, and wages are stagnating. The popular plan to retire in your 60s seems less and less achievable, so is retirement before this age even possible? Through value investing, I believe it is. The earlier you start, the better your chances of achieving your goal and these unprecedented times may offer you an opportunity to get going.

Stock market investing

There are a few ways to approach stock market investing. You could become a day trader, buying and selling repeatedly throughout the duration of the day. This is a highly volatile and difficult process to master, and one I think is best left to the professionals. Alternatively, there is penny stock trading, which is when you buy shares that usually cost no more than a few pence in the hope of making massive returns. This is another risky way to approach investing. You could get lucky, but most newcomers to penny stock trading get their fingers burnt. My preferred way to do it is value investing. This is the strategy used by Warren Buffett and Charlie Munger. These two billionaire investors have made their fortunes at a slow and steady pace.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

What is value investing?

Value investing involves buying shares in a company that looks like it will grow, a company with a share price that appears to be undervalued and is already established. Even the best companies go through problem periods, but this does not mean they are done for. Far from it, a bad period often gives them the opportunity to step back, look at where they have gone wrong and rise from the ashes reborn, stronger. Covid-19 has thrown a spanner in the works for many businesses, but the strongest will survive by ruthlessly streamlining, realigning their goals and focusing on future stability.

How do you identify a high-quality company? Well, there are few points to consider that can help you. A brand-new company with great potential but no proven experience will always be a risky bet. Therefore, choosing a company with lots of experience under its belt is a good place to start. The FTSE 100 and FTSE 250 are full of such companies.

A long-term horizon

Value investing begins with a long-term time horizon. It is not a get-rich-quick approach and slow and steady wins the race. A few points value investors use to evaluate companies include:

  • A passionate management team focused on delivering shareholder value
  • A low price-to-earnings ratio (traditionally below 10)
  • Room for growth
  • Little to no debt
  • Rising free cash flow

It is important to have faith and discipline when value investing, particularly during times like these. It is also wise not to impulse-buy or sell. Volatility is rife and you can easily make losses if you let your emotions guide you. A consistent approach to investing can help you get rich and may even allow you to retire early.

Are you looking for growth companies to boost your Stocks and Shares portfolio? Let the Motley Fool help you...

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.