Warren Buffett has a long track record of generating high returns. In doing so, he’s become one of the wealthiest investors in the world who enjoys significant financial freedom.
As such, following his methods could be a sound means for almost anyone to improve their financial outlook.
With many UK shares trading at cheap prices after the 2020 market crash, now could be the right time to make a start. Doing so could enable someone with no retirement savings to build a surprisingly large nest egg.
Warren Buffett’s focus on undervalued shares
Buying undervalued shares has long been a key tenet of Warren Buffett’s investment strategy. He seeks to buy high-quality businesses while they trade at low prices. This allows him to capitalise on low share prices that may only be temporary. Over the long run, this can lead to impressive returns that positively impact on his portfolio valuation.
At the present time, many FTSE 100 shares appear to offer good value for money. Sectors such as telecoms, banking and energy currently face difficult operating conditions that are causing the financial performances of their incumbents to decline in some cases.
As a result, investor sentiment is weak. This could provide an opportunity for other investors to buy financially-sound businesses at low prices. As the economic recovery unfolds, such companies may enjoy improved operating conditions that lead to higher profitability and rising stock prices.
Building a portfolio from a standing start at age 40
While it may not be likely for an investor to follow Warren Buffett in becoming a billionaire, obtaining a large nest egg could be a realistic goal. After all, the FTSE 100 has produced annual returns in the high-single digits since inception. A similar return on a £500 monthly investment over a 25-year time period would produce a portfolio valued at around £480,000. From this, a 4% annual withdrawal amounts to more than double the State Pension.
However, through buying undervalued shares it is possible to outperform the wider stock market. Its past performance shows that it is very likely to reach new record highs over the coming years. Since the FTSE 100 is still trading below its all-time high, there appears to be scope for a further stock market recovery.
Managing capital in 2021
Of course, Warren Buffett also holds significant amounts of cash. This provides him with peace of mind and the ability to capitalise on attractive share prices that may only be available temporarily.
With many political and economic risks likely to remain high in 2021, following his lead could be a shrewd move. Holding some cash in case of emergency could help an individual to survive the short run in order to benefit from the long-term growth potential offered by the stock market.