A lot of attention is given to the investing wisdom of Warren Buffett. But Buffett has long been a multibillionaire with enormous funds at his disposal to invest. He has access to people and business contacts that few private investors could easily match. So, if I wanted to invest just £1,000, is it worth me studying Warren Buffett?
I think the answer is yes. Buffett himself started as an investor with small funds in his childhood, before growing his worth through investing and business acumen. In fact, with a smaller amount to invest, misjudgements can have a disproportionately big impact. So arguably, I think Buffett’s wisdom may be even more valuable for me as a small private investor than if I had billions to invest. Here are two Buffett lessons I would apply if I were investing £1,000 today.
Taking time to go for great
Buffett reckons that people get a fair number of good investment opportunities in their lifetimes – but not so many great ones. The difference in investment returns can be significant, especially over the long term. Let’s say, for example, that one investment yields a 6% annual return and the other a 9% annual return. That difference might not sound huge. After 40 years, reinvesting the returns each year, the 6% yielding investment would have turned my £1,000 into £10,957. By contrast, the 9% yielding investment would be worth £36,110 – over three times as much.
One reason many people go for good not great investments is simply because they are impatient. Rather than looking for outstanding shares in which to invest and waiting – years if necessary — they decide to plump for the first decent share they find.
Warren Buffett cautions against too much investment activity or acting hastily for its own sake. He is willing to sit on tens of billions of dollars for years at a time rather than invest it in what he regards as insufficiently attractive businesses. With £1,000, my scope for error is small, so I think this Buffett lesson would apply to me.
Buffett keeps things simple
There is sometimes a perception that to get extraordinary returns, one needs to find extraordinary investments.
The reality is that very high-performing investments can be in everyday companies one has been aware of for years. After all, some of Buffett’s biggest investment returns have come from investing in companies like Apple, Coca-Cola, and American Express. These are well-known companies in straightforward lines of business.
If I was investing £1,000, I’d apply this lesson from Warren Buffett. I would aim to keep things simple and invest in companies I understood. I would not chase after dramatic returns in exotic stock markets or try to find hidden bargains among unheard of companies on the fringes of the UK stock market. Instead, I would focus on finding great value in large, well-established companies in relatively stable industries. That’s made Warren Buffett a billionaire.