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Here’s how I’d invest using the Warren Buffett method to make a million

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Warren Buffett’s investing methods have enabled him to become one of the most successful investors of all time.

Fortunately for other investors, his strategy is well-known and relatively simple. As such, it can be successfully implemented to potentially deliver higher returns in the long run.

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With many sound businesses trading at low prices following the stock market crash, there may be opportunities to make impressive returns in a likely stock market recovery. An investor may even be able to make a million.

Warren Buffett’s focus on economic moats

Warren Buffett doesn’t only consider the price of a stock before investing money in it. In fact, his major consideration has historically been the competitive position of a business, and whether it has a clear and sustainable advantage over its peers.

A company that has a wide economic moat — as Buffett describes as having a competitive advantage — may be able to deliver more robust profit growth in a range of market conditions than its sector peers.

Economic moats may become even more important over the coming years. The full impact of the coronavirus pandemic remains a known unknown. As such, only those businesses that have a clear competitive advantage over their peers may be able to deliver rising profitability. Such companies may, for example, have unique products, brand loyalty or cost advantages. This means they’re highly attractive to investors such as Warren Buffett at the present time.

Confidence in a long-term stock market recovery

Warren Buffett has historically been optimistic about the prospects for a stock market recovery after even the very worst periods for the economy. For example, he was investing money in stocks following the global financial crisis when other investors were selling. Indeed, he’s always had confidence in the capacity of share prices to recover from their lows. Especially as economic performances improve, profits rise and investor sentiment strengthens.

Therefore, investors who adopt a similar approach may benefit from a likely stock market rally. So don’t worrying about how the FTSE 100 and FTSE 250 may perform over the next few months. A more profitable move may be to consider how their price levels are likely to change over the coming years. This may enable an investor to more easily capitalise on low stock market valuations. Just as Warren Buffett has done over many years.

Making a million

Clearly, following Warren Buffett and making a portfolio valued in the tens of billions isn’t possible for the vast majority of investors. However, obtaining a portfolio valued at over a million could be a more realistic aim than many investors realise.

Even if an investor obtains the same 8% annual total return as the FTSE 250 has delivered in the past 20 years, a £750 monthly investment would become worth over £1m within 30 years. But it may be possible to achieve the goal of a £1m portfolio much sooner. Investors just have to focus on economic moats and have a long-term timeframe, 

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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.

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