Warren Buffett is one of the most successful investors in the world. To say that when he talks, people listen, is an understatement. The billionaire philanthropist is also one of my investing role models. Here’s how I use some of his famous sayings to invest in FTSE stocks.
Investing shouldn’t be complicated
“The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective.”
Warren Buffett’s strategies are all about simplifying the process to make rational decisions. Buffett makes the point you don’t have to be a genius to be a good investor, but instead there’s a lot of due diligence and hard work involved. He’s said that “there seems to be some perverse human characteristic that likes to make easy things difficult.” I believe it’s human nature to sometimes complicate often simple things. I don’t think investing in FTSE stocks is easy, but I try to remember this saying when making my own choices.
High returns with low risk
“Risk comes from not knowing what you are doing.”
When investors have some success, they believe that this success in one area is transferable to an entirely different industry or arena. Stick to what I know and do my homework is what I take from this. Warren Buffett says we should “never invest in a business you cannot understand.”
Even Warren Buffett makes mistakes. His investment vehicle recently sold all its shares in Houston-based oil producer Occidental Petroleum after an ill-fated acquisition backed by him. Since then however, he has re-entered the oil industry, buying shares in Chevron Corporation. It paid off as Buffett scored a $1.2bn gain on its shares in under 10 weeks. It seems even at 90 years old, the Sage of Omaha is still learning investment lessons.
Long-term investing like Warren Buffett
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
The Buffett (and the Foolish) way is to invest for the long term. He believes that investing is about minimising risk to generate wealth over the long term, not generating short-term profits. One of my favourite sayings of his is “Our favourite holding period is forever.” I believe that this encapsulates the idea that investing should be about the long term. When I buy a FTSE stock I view it as a long-term buy-and-hold.
How I invest in FTSE stocks
I could probably write a lot more about the lessons I’ve learned from Warren Buffett and how I apply them. But the points I covered are some of the main principles I follow.
I invest in FTSE stocks for the long term. I try to invest in a business or industry I understand or can learn about easily. Investing isn’t rocket science with multiple theories and complex equations. I truly believe it’s about doing my due diligence and research.
Warren Buffett isn’t a huge fan of excessive diversification and his biggest winners have only come from a handful of the stocks he’s owned. The best examples that spring to mind (apart from the aforementioned Chevron) are Apple, Coca-Cola, American Express, General Motors, Mastercard and Johnson & Johnson.
As for me, I like Fevertree Drinks and Tritax Big Box, two FTSE stocks I believe will continue to flourish in 2021 based on my Warren Buffett investing rules.
Jabran Khan owns no share mentioned. The Motley Fool UK owns shares of and has recommended Apple and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. The Motley Fool UK owns shares of and has recommended Mastercard. The Motley Fool UK has recommended Fevertree Drinks, Johnson & Johnson, and Tritax Big Box REIT. 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.