In this article I want to share with you my view on the secret of Warren Buffett’s success. I’ll also explain how I’m using Buffett’s methods to buy cheap FTSE 100 stocks in this uncertain market.
What’s the Buffett method?
Unlike some of his rivals, Buffett has always been happy to share his knowledge and experience freely. When it comes to investing, he’s always keen to make clear that success involves doing a few simple things correctly.
First of all, don’t try and predict industries that will change the world. Instead, Buffett says to focus on finding companies that have a sustainable advantage over rivals. For example, businesses with valuable brands or large networks that make it hard for new competitors to gain market share.
Examples from Buffett’s own portfolio include consumer goods companies, rail transportation, and utility networks. They all benefit from reliable cash flows and durable advantages over smaller rivals.
Buffett’s says that if you “put together a portfolio of companies whose aggregate earnings march upward over the years, […] so also will the portfolio’s market value.”
Which FTSE 100 stocks would Buffett buy?
Buffett is well-known for his love of a bargain. But he’s keen to remind investors not to sacrifice quality in pursuit of a bargain.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Looking at the FTSE 100 today, I think that he’d be looking closely at consumer goods giant Unilever (a business he tried to buy a few years ago). I think he might also be interested in Irish group DCC and perhaps packaging group DS Smith. These firms are all facing some challenges right now, but in my view they all have good products, impressive distribution networks, and a decent reputation.
Where else might Buffett look? One possible choice for me would be Lloyds Banking Group. Buffett is a big investor in US banks. I think Lloyds’ big share of the UK mortgage market might appeal to him.
The secret of Buffett’s success
Plenty of people have the same knowledge as the Oracle of Omaha. But they aren’t all so successful. I believe there are two secrets to Buffett’s long-running success.
One of Warren Buffett’s notable qualities is that he’s always trying to learn. Buffett has said “the most important investment you can make is in yourself”. Both Buffett and his partner Charlie Munger spend hours reading and thinking every day.
They don’t chop and change investments based on the latest news events or social media fads.
However, I’d argue that Buffett’s real secret — the biggest advantage he has — is his persistence. For over 55 years, he’s consistently applied the correct investing methods. He’s avoided fads and booms and he’s carried on investing through market crashes.
Most people don’t have this kind of patience and consistency. Very often, this means their results suffer because they change direction or sell out at the wrong time.
My plan is to keep buying good stocks and turn a blind eye to the news. I hope this will help me deliver market-beating returns over the coming years.