Warren Buffett and Charlie Munger are two of the most successful investors of all time. Together, they’ve turned Berkshire Hathaway into one of the most valuable companies in the world.
Interestingly, they’ve achieved this goal through a relatively simple investment strategy that can be replicated by almost any investor.
In fact, through focusing on value opportunities and investing for the long term, it’s possible to build a surprisingly large retirement portfolio – even from having no savings at all at age 40.
Warren Buffett and Charlie Munger’s value investing approach
Warren Buffett and Charlie Munger seek to buy high-quality companies when they trade at fair prices. As such, they don’t necessarily purchase the cheapest shares that are available at any point in time. Nor are they willing to pay a high price for even the most attractive businesses.
Rather, they aim to identify companies that have a competitive advantage versus sector peers. Then they purchase them when their share price trades at a discount to intrinsic value.
Clearly, determining a company’s intrinsic value, or real worth, is very subjective. So too is deciding whether a company is high quality or not. However, through assessing a specific sector and building up knowledge about the companies that operate within it, it’s possible to identify the most attractive stocks.
Waiting for buying opportunities can be tough, but certainly profitable, in the long run as they deliver capital growth from a low share price.
In today’s market, a number of strong businesses appear to trade at attractive prices after the 2020 stock market crash. As such, there may be opportunities for investors to follow Warren Buffett and Charlie Munger’s strategy to generate high returns in the long run.
A long-term approach to investing
Of course, the pair have built Berkshire Hathaway to its current size over many decades. They have relied on a system of compounding to turn attractive returns into a vast portfolio. They’ve also been able to overcome various market declines simply by adopting a tried-and-tested buy-and-hold strategy.
An investor aged 40 is likely to have sufficient time to do likewise. Certainly, they may not end up with a portfolio valued in the billions. However, even obtaining a similar return to that of indices such as the S&P 500 or FTSE 100 can turn a modest investment into a large sum.
For example, assuming an 8% annual return over a 25-year time period would mean a total return of around 600%.
Therefore, investing today using a similar approach to that followed by Warren Buffett and Charlie Munger could be a sound move. It may enable an investor to turn a modest initial gains into a surprisingly large portfolio. And that means they can enjoy greater financial freedom in older age.
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.