Warren Buffett is widely considered to be one of the best investors of all time. As such, I’ve always kept a close eye on his key investing principles. What’s more, newer investors may be surprised to hear how simple yet effective his investment philosophy is.
With that in mind, here’s how I’d use the Warren Buffett method to make a million from buying some of the best UK shares on the market.
Be on the lookout for cheap UK shares
A core principle of Buffett’s investment philosophy is the concept of value investing. This involves buying shares in companies that appear to be trading on a reduced valuation. We can spot undervalued shares by looking at a range of valuation metrics, including the price-to-earnings and the price-to-book ratios.
It’s important to remember that a fall in price does not necessarily mean a company’s shares are undervalued. After all, there could be good reason for this, and the shares could even have further to fall. Rather, I’m looking for companies whose shares appear to be trading at a significant discount to their intrinsic value.
The great thing as a British investor, is that the UK stock market still appears relatively cheap in my view. According to the Financial Times, at the beginning of November, UK shares were as cheap as they were 50 years ago when compared with the global average. Granted, the FTSE 100 subsequently rose sharply on the back of the vaccine news. But UK shares still look somewhat undervalued compared to their international counterparts to me.
Finding companies that have long-term potential
Armed with the value investing criteria championed by investors such as Buffett, my next goal is to look for companies that can stand the test of time.
It comes as no surprise that Buffett prefers investing in strong and well-established brands. For example, among his holdings are household names such as Coca Cola, Apple, and Kraft Heinz.
Keeping in mind the kinds of stocks that Buffett owns, I’m confident that UK companies with strong market positions, well-known brands, and customer loyalty would be at the top of his radar. For example, I think Unilever and Reckitt Benckiser meet the above criteria.
Prepare to hold for the long term
Finally, and perhaps most importantly, Warren Buffett is always investing with a long-term mindset. In fact, the investing guru warned that “if you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”. After all, growing capital takes time, and the fluctuations in the stock market mean that a long-term horizon is preferred.
Money doesn’t grow instantly, but over time, thanks to the wonders of compounding returns, it’s entirely possible to turn even a small initial investment into a six-figure portfolio. To illustrate, let’s say I invested £650 a month and achieved an annual return of 8%. After 31 years, I’d have an investment pot worth £1,003,320. With that in mind, I’d continue buying cheap UK shares like Buffett and holding them for the long term.