Warren Buffett is one of the most respected investors of any generation. With an estimated net worth of $101bn, he’s clearly more than doubled his money on plenty of investments over the years. With £1,000 of my own money, here’s how I want to try and imitate the great man right now.
Being patient
There are plenty of investment ideas out there at the moment that claim to be able to double my money within the space of just a few days. I’m sceptical about this, given the fact that I’ll need to take on a high level of risk in order to potentially make those kinds of returns in such a short period.
The potential of making a 100% return isn’t crazy though, it just takes time. As Buffett once said, “someone’s sitting in the shade today because someone planted a tree a long time ago”.
If I can plant my seeds right now, further down the line there’s a good chance that I’ll be able to see the fruits of my labour. The concept of compounding returns over time means that my best chance of achieving a high profit is to invest and then leave my money. This contrasts to trading in and out of stocks each day.
For example, Buffett holds a large position in Apple. If I’d invested in the company at the start of 2020, I’d have doubled my initial £1,000. If I’d invested five years ago, I’d have almost tripled my money.
Investing in value stocks
Value investing has been the core element to Warren Buffett’s success. This involves trying to find undervalued stocks that should (in the long run) return to a higher price when the dust settles.
Even though I might think that growth stocks are my best bet to trying to make large returns, this isn’t always the case. The risk with growth stocks is higher, so this could hamper my goal if I end up buying shares that don’t do well.
Value stocks aren’t risk-free by any means. That’s why Buffett commented that “it’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”.
Just because a stock has taken a tumble doesn’t mean that it’s going to recover. Rather, I’m better off buying a wonderful stock that’s strong fundamentally, even if the price is only at a small discount. There’s a higher probability that the price will move higher in this case. Even though my return will be smaller, it’s more consistent. In the long run, this should help me to double my money through several ideas.
Time to imitate Warren Buffett
I think I’ll have an opportunity to put the above points into action very soon. Although I don’t anticipate a stock market crash, I do think that there will be some short sharp sell-offs in coming months.
The dips that I see along the way will give me the opportunity to put my money where my mouth is on top value stocks. From here, I can be patient with my portfolio, with the aim of doubling my money in years to come.