Image source: The Motley Fool
As investors in the 2020s can we learn from Warren Buffett's strategies?
After all, he is a millionaire but most of his investment methods were developed in the 1960s, 1950s, or even earlier.
In fact, I think Buffett's method is still as valid today as ever. Also, Sage of Omaha has lived through many market storms – and crashes. That kind of experience would be very helpful as I try to navigate the stock market in uncertain times.
Here are a few aspects of Warren Buffett's way of investing that I hope will also help me as I aim to build wealth.
Focus on the long term
Will hot sharing be available tomorrow, or next month?
Usually, Warren Buffett doesn't care. Yes, he likes to buy stocks for less than they're worth – at best. But his time lasts a long time. You invest with the idea of holding stocks for years or decades. Indeed, his shares in companies like Coca-Cola go back decades.
Come up with just a few brilliant ideas
When you look at the billions upon billions of pounds that Warren Buffett has made in the stock market, it would be easy to imagine that he spends hours every day coming up with investment ideas.
It is true that Buffett often spends hours a day learning about different businesses. But you actually put in very little money. Buffett said his success basically boils down to one investment idea every five years or so.
That's because he focuses on ideas that can really move the needle. He is not very interested in buying stocks that he thinks offer the prospect of a very good return. Instead, he likes to wait for outstanding opportunities and go after them more. Even as an independent investor with a limited approach, I believe that the same approach can help me build wealth in the stock market.
Acquiring large companies and holding for a long time
As an example, consider a stock I bought this year that I think meets many of Warren Buffett's criteria (and indeed he held it decades ago when we had a different name): Diageo (LSE: DGE).
Buffett looks for businesses with market capitalizations that are likely to remain the same. Beer and spirits meet that definition. He also likes firms to have a competitive edge, something he calls “the canal” (as it helps deter rivals). Diageo's premium brand portfolio gives it such a groove. After all, many of its drinks are unique.
That provides strong pricing power. The power of pricing helps profit, which in turn helps pay dividends. Like Coca-Cola, Diageo is a Dividend Aristocrat that has grown its dividend every year for decades.
I can see the risks, explaining the recent weakness in Diageo's share price. Another demand deficit in Latin America, which ate into revenues and profits.
But that gave me an opportunity to buy what I see as a good business at an attractive price, the way Warren Buffett intended.
Source link
