Warren Buffett is one of the most successful investors in the world and the billionaire philanthropist is one of my investing role models. To say, “When he talks, people listen” is an understatement.
It’s very easy to research Buffett and his pages upon pages of investing advice as well as a series of well-known quotes which detail how the Oracle of Omaha successfully became an investing legend. Here is how I formed some of my investing rules through Buffett’s sayings.
Long-term investing
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” I am a huge advocate of investing for the long term. Buffett believes that investing is about minimizing 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.
High returns with low risk
“Risk comes from not knowing what you are doing.” This is simple, but brilliant. 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 you know and do your homework is what I take from this. Warren Buffett says “Never invest in a business you cannot understand.” He himself has largely kept out of the technology sector for the most part, given his lack of knowledge there.
Warren Buffett: People make investing more difficult than it should be
“The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective.” This is one of my favourite Warren Buffeett quotes of all time. His strategies are all about simplifying the process to make rational decisions. Buffett time and again makes the point you don’t have to be a genius to be a good investor, but instead there is a lot of due diligence and hard work involved. I believe it is human nature to sometimes complicate often simple things. I didn’t need Warren Buffett to teach me that but I believe he thinks the same. He says, “There seems to be some perverse human characteristic that likes to make easy things difficult.”
How I invest like Warren Buffett
I could probably write many more pages about the different principles of investing I have learnt through Warren Buffett. The points I have covered off are some of the main rules I follow around investing.
I invest for the long term. I try to invest in a business or industry I understand or can learn about. Investing is not rocket science with multiple theories and complex equations, it is about hard work and doing your due diligence. I try not to over-complicate or overthink things.
Buffett has owned many thousands of stocks throughout his illustrious career. Despite this, his biggest winners have only come from a handful. The examples which spring to mind are Coca-Cola, American Express, General Motors, Mastercard, and Johnson & Johnson.
All of the companies mentioned are blue-chip household names in their respective industries. With that in mind, here is one FTSE 100 top UK stock I really like and have used my Warren Buffett investing rules in picking.