Warren Buffett is one of the greatest investors of our generation, with a net worth over $100bn. One of the points that makes him so compelling to listen to is his wealth of experience. After all, he’s been investing for over 70 years. He’s been successful during this period as well, and he has seen crashes come and go, boom periods and wild rides in the market. Given his investing philosophy, here’s what I think he might do with £1,000 right now.
Warren Buffett’s nuggets of wisdom
As a large disclaimer before we get going, I have not spoken to Warren Buffett and so cannot say for certain that this is what he would do! But what I can do is look at the advice he has given in the past and apply that to today.
For example, Buffett once commented that “risk comes from not knowing what you’re doing”. So when it comes to investing £1,000 into FTSE 100 stocks, I need to do my homework. Randomly picking stocks could present a high risk as I wouldn’t know why I was investing in them specifically.
So before he might make any investments, he’d make sure that he’d read up on the company. I agree. I want to be comfortable with the outlook and also happy that I can afford the amount that I’m thinking of investing.
From here, I look to apply his advice when he mentioned that “it’s not necessary to do extraordinary things to get extraordinary results”. Particularly with the retail investing boom of the past couple of years, I think many investors try and overcomplicate things.
Although I wouldn’t simply buy a FTSE 100 tracker with my £1,000 to get extraordinary results, I wouldn’t try and be too clever either. Buying half a dozen stocks from a mix of different sectors should give me the opportunity to have a shot at beating the index.
Finally, I actually think that Warren Buffett would keep a small amount of the £1,000 in cash, waiting for opportunities. This is based on the most famous quote of his that investors should be “fearful when others are greedy and greedy when others are fearful”.
At the moment, I don’t think investors in the FTSE 100 are fearful or greedy. But as the stock market crash last spring showed, things can change very quickly. Therefore, keeping some cash on the side in case we see another market blip is a good idea. When others become fearful and panic-sell stocks, it often can lead those stocks to be undervalued. With liquid cash, this can allow me to be greedy and snap them up.
There are other elements that I’m sure Warren Buffett would want to include in a FTSE 100 stock portfolio. But in terms of some guiding principles, I think his quotes give me a good idea of where to begin.
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jonathansmith1 has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.