The Motley Fool

How Warren Buffett’s advice could help me invest £1k

Image source: Getty Images

Warren Buffett is one of the greatest investors of all time. Over the past 70 years, he’s grown an initial investment of $100,000 into a company with more than $700bn of assets.

I think anyone can learn a lot by looking at the famous investor’s career. I’ve certainly learnt a lot. Indeed, if I had to invest a lump sum of £1,000 today, I’d follow his advice.

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...

Warren Buffett’s advice

Buffett believes investors should only buy high-quality businesses. These are companies with substantial competitive advantages, which can be anything from significant economies of scale to global brands.

Two of his favourite companies are Apple and Coca-Cola. Both of these organisations have incredible brands, which are recognised the world over. That’s helped them grow year after year and generate enormous profits for their investors.

He focuses on these high-quality companies and ignores low-quality businesses, no matter how cheap they might be. Indeed, he once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

If I had to invest a lump sum of £1,000 today, I’d follow this advice. However, rather than picking winners on valuation alone, I’d seek out the market’s best businesses and focus on profit margins, competitive advantages and brand strength.

close-up photo of investor Warren Buffett

Buffett also places a lot of emphasis on the strength of a company’s management. He’s looking for highly competent managers that can run a business through thick and thin, as well as coping with everything the world throws at them.

And he also tends to avoid commodity companies such as oil and mining corporations. The reason why he tends to stay away from the sectors is simple. Commodity prices can be highly volatile. As such, these companies have to hope for the best that prices remain high and above production costs. That involves a great deal of guesswork, which even Buffett may struggle with.

An investment framework

Using all of the above, I’ve been able to put together an investment framework built on his advice. This framework is relatively simple. It suggests I should only target stocks with strong managers, wide profit margins, a robust competitive advantage, and avoid resource companies.

With this framework in mind, I’d invest my £1,000 in companies like Unilever and Reckitt. Both of these enterprises own portfolios of billion-dollar brands. That’s their competitive advantage. Highly experienced management teams also run them and, most importantly, they can set their own prices.

Of course, this strategy might not be suitable for all investors. Finding good companies can be incredibly challenging. Even Buffett gets it wrong occasionally. That’s why he’s also advocated using a low-cost passive index tracker fund for investors who might not have the time or experience to find individual businesses. This strategy might be more suitable for less experienced investors.

However, if I had an investment of £1,000 today, I would follow Buffett’s advice and buy Unilever and Reckitt.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Rupert Hargreaves owns shares in Reckitt and Unilever. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended Unilever and recommends the following options: short March 2023 $130 calls on Apple and long March 2023 $120 calls on Apple. 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

Renowned stock-picker Mark Rogers and his 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 click below to discover how you can take advantage of this.