A lot of famous tech names have seen their share prices plummet in the past year. Facebook-owner Meta is down 71%, while Amazon has fallen 40%. But the growth stock that has caught my eye is Google-parent Alphabet (NASDAQ: GOOG).

The Alphabet share price has fallen 35% in the past year. I think it is starting to look like a bargain for my portfolio. Here is why.

Alphabet has a great future

Normally when a share price falls, it either means it was overvalued before or else the company’s business prospects have changed.

Arguably Alphabet was overvalued before, although its current price-to-earnings ratio of 19 looks attractive to me. I think its business prospects remain outstanding. One mistake some investors make when looking at Alphabet is to focus on short-term trends. For example, the shares recently fell after the company’s third-quarter results failed to meet Wall Street expectations.

To be clear, they were still strong in many ways. Revenues grew 6% year-on-year and came in at $69bn. Net income fell sharply from the same quarter the prior year but was nonetheless almost $14bn.

As long-term investor, though, what excites me about Alphabet as a growth stock is not its quarterly performance. I like the way it is hardwired into the daily lives of hundreds of millions of users. From Gmail to YouTube, the switching cost for many users makes them loyal to Alphabet’s services. Not only do few if any competitors offer as good a product, many users have so much content on Alphabet sites they are unlikely to jump ship.

Compelling business model

That enormous user base and stickiness helps explain how Alphabet is able to make mammoth profits.

It has been able to monetise that through selling advertising. Its huge digital presence and deep user understanding means Alphabet is a key player in the global advertising market, something I expect to last for many years. There is a risk that a decline in advertising spend could hurt revenues and profits. That already showed up in the recent results and there could be worse to come.

As a long-term investor, though, I think Alphabet has a great business, and I would be happy to own a part of it at the right price.

Is this growth stock attractively priced?

Lately, I have been weighing up the pros and cons of adding Alphabet back into my portfolio at its current price.

I do find the valuation attractive but there are a lot of other quality shares currently trading for what I think are good prices. In the long term, though, I feel upbeat about the prospects for Alphabet and would be happy to own its shares. That is why I see it as a bargain. If I had spare cash to invest right now, I would snap up Alphabet shares for my ISA.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Setting up passive income streams could let me earn money without needing to do any work for it. One way I can try to do that is by investing in income shares. The dividends would be passive income for me.

Here is how I might go about that by using a spare £100 per week.

How income shares can earn me money

Dividends are basically how a company shares excess profits from its business with shareholders. They can be financially lucrative. But dividends are never guaranteed and even a firm that has paid out in the past may stop doing so.

I would therefore look for income shares I reckoned looked likely to pay dividends in future. So I would look at a company’s business model and try to assess whether I thought it might be able to make large excess profits in future. For example, would there be strong customer demand for its products or services? Does the company have some edge over rivals that could support profitability? Could profits fund dividends, or would they be needed for other purposes such as paying down debts?

Choosing shares to buy

How would I go about finding shares that met such criteria?

I would stick to areas I understood, just like billionaire investor Warren Buffett does. That way I should be in a better position to assess a firm’s prospects. A company could still turn out to disappoint me, though, so again like Buffett I always diversify my portfolio across a number of companies.

One of the income shares I own that I think demonstrates this approach is Dunelm. I expect that long-term demand for homewares will be resilient. Dunelm’s unique product range, store network, and well-established brand give it a competitive advantage. Like all companies, it faces risks, such as a worsening economy leading consumers to spend less.

Dunelm is profitable and last year it declared ordinary dividends of 40p per share. Some has been paid already and some remains to be paid. Dividends are often not paid to shareholders for weeks or months after they are declared. As the current share price is around £8.89, that means Dunelm has a dividend yield of 4.5%. That is the annual dividend per share expressed as a percentage of the current share price.

Remember, though, that as future dividends are never guaranteed, it is only an estimate of what yield I might earn if I bought Dunelm shares today. Falling sales could lead Dunelm to cut its dividend in future. Or if it does well it may even pay a special dividend on top of its ordinary payout, as it did last year.

Totting up my passive income

So, how much could I earn by putting £100 a week into income shares?

That depends on the average yield of the shares I buy. £100 a week is £5,200 over a year. Investing that at an average yield of 4.5% (like Dunelm’s) ought to earn me around £234 a year in dividends.

There could be more to come, as that is only the start. If I keep saving into a second year, I could build up another pile of money to invest, while still hopefully earning dividends from the income shares I bought the previous year.

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C Ruane has positions in Dunelm Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The idea of becoming a millionaire holds a lot of appeal for many people. A million pounds may not be worth what it once was – but it is still a substantial sum.

Rather than trying to aim for a million with some hare-brained scheme, I would take a methodical, long-term approach to such a goal by investing regularly in shares.

Putting aside some money every day

If I put aside £25 a day, that would add up to around £750 each month to invest. Over time, hopefully, that money could itself earn money, for example if I earn dividends from shares I buy.

I would keep saving daily. That would help lay the foundations for my long-term financial success. And although £25 a day is a lot to save, I think if an investor seriously wants to aim for a million, it takes effort.

Building a buy and hold portfolio

The basis of my plan would be to invest the money in shares. I would not try to exploit short-term price movements the way a trader does. Instead I would adopt the approach of a long-term investor.

This means looking for shares I think offer me outstanding value relative to their long-term prospects. That way, I could hopefully let time show the quality of the companies in which I invested.

Most important, I would focus on large, well-established companies with proven business models and a track record of profitability.

Going for growth?

That would knock some early-stage growth companies out of my reckoning. But if I wanted to, I could still base my portfolio on growth companies that met my investment criteria, like Google parent Alphabet.

Or I might invest in income picks such as Direct Line and compound the dividends year after year. Rather than make a choice between the two approaches, I could also opt for a blend of growth and income strategies.

Whatever I chose, I would keep my portfolio diversified to reduce the impact if one of the shares I owned performed poorly.

I’d aim for a million!

Imagine I aimed for a 10% annual increase in the value of my existing shares before considering the new money invested, either from share price growth, dividends, or a combination of both. That is aggressive but I see it as achievable. Direct Line, for example, currently has an annual dividend yield of 11.1%.

To aim for that million pounds means if I managed to get a 10% annual return I would hopefully hit my target after 26 years.

Not only that, I might earn a sizeable passive income if I chose. For example, after 26 years if my portfolio was earning a 10% dividend yield and I decided to start taking that as cash instead of compounding it, I could earn £2,000 every week on average in dividends.

So I think that could be worth me putting aside £25 each day in a share-dealing account, starting today!

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. C Ruane has positions in Direct Line Insurance. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It may be easier to toast JD Wetherspoon (LSE: JDW) as a punter than an investor. That is because the JD Wetherspoon share price has more than halved over the past 12 months.

As a Spoons shareholder, that dismal performance concerns me. But I think it could also present me with a buying opportunity to top up my position the next time I have spare funds to invest. Here is why.

Valuing businesses

The foundation of a good business is long-term customer demand. On that front I think Spoons is well-positioned. People will want a place to socialise for decades to come. For many it may be the boozer. Higher beer prices and health concerns could dent demand for pubs, but I think by offering non-alcoholic drinks and food, the business will be able to ride that trend.

Next, a firm needs some competitive advantage that can set it apart from rivals. That gives it (in some cases) pricing power, which can help profits. In this regard, Wetherspoon sacrifices pricing power for pulling power as its pricing is extremely competitive. But it also has central locations, longer opening hours and a wide range of cheaper ales and food to help it stand apart. Walk into almost any branch even early in the day and it tends to be doing good business.

Finally, a business needs to convert its popularity into profits. It can do that by keeping debt low and managing costs properly. Here I have a concern about the firm’s net debt. It stood at £892m at the end of July, which is larger than the chain’s current market capitalisation of £597m. Servicing and paying down that debt could be a drag on profitability for years to come.

Roll out the barrel

After a very difficult time during lockdowns, the company’s financial performance has been recovering.

Revenues last year were within 5% of pre-pandemic 2019 levels. The company reported an operating profit once more and, after exceptional items, a £146m post-tax loss the previous year turned to a £19m profit this time around. That all suggests that the pub chain’s business has been moving in the right direction.

Like-for-like sales in the first nine weeks of the firm’s current financial year grew by double-digits compared to the same period in the prior year.

I think the JD Wetherspoon share price looks cheap

But while the business performance has been improving strongly, the share price has been moving the other way.

I think that reflects risks such as the company’s debt burden eating into profits and soaring costs hurting margins. With its focus on value for money, Spoons may struggle to pass on price increases fully to patrons without losing some sales.

However, I feel the underlying business is very attractive. It was profitable for decades and I believe it can return to a strong financial performance in years to come.

Given all that, the current JD Wetherspoon share price looks cheap to me. Using 2019 earnings, the current price-to-earnings ratio is just six. The company has almost got back to 2019 levels of revenue – if it can do the same with earnings, today’s price could turn out to be a bargain for my portfolio.

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C Ruane has positions in JD Wetherspoon. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Alternative energy remains a popular investing theme. While oil producers like BP and Shell have been riding high lately, however, some alternative energy shares have been struggling. Take Ceres Power (LSE: CWR) as an example. Over the past year, the Ceres Power share price has tumbled by almost three-quarters.

That means that if I invested today and the price got back to its 12-month high, I could nearly quadruple my money. But how likely is that in reality?

Valuation woes

To understand what might happen next, first it helps to know why the share price has fallen so steeply.

Partly I think it is because the business performance seems to have gone backwards not forwards in the past year. At the interim results stage, for example, Ceres reported revenue, gross profit and a gross margin all sharply down from the same period last year. The post-tax loss jumped from £6.5m in the same period last year to £23.3m this time around. None of those figures look at all attractive to me as an investor.

On top of that, Ceres looked highly valued a year ago. Even now, after it has fallen 73%, the market capitalisation still comes in at over £650m. That strikes me as a lot for a loss-making company with no track record of profitability.

Long-term potential

Despite the recent weak financial performance, however, I do see some positive aspects to the long-term outlook.

It expects to ink joint venture agreements in China in coming months, which could provide a substantial revenue boost thanks to licence fees. Elsewhere, Doosan is planning to start manufacturing solid cell batteries in South Korea using Ceres technology.

Its tech has attracted serious attention from sophisticated companies like Doosan and Bosch, which suggests that it may be able to benefit from the projected long-term growth of demand in the solid cell battery market.

Can the share price bounce back?

However, simply having attractive technology is not enough on its own to justify the sort of market capitalisation Ceres Power had a year ago, in my view. In fact I do not even see it as enough to justify the current share price.

Instead I think the long-term direction of the shares will largely depend on how well the company is able to commercialise its technology. To do that well, I think it needs sales growth, a more diversified customer base than it has right now and a clear path to profitability.

If it does those things well enough, the Ceres share price might yet return to its former level – though I do not expect that to happen any time soon. If it confirms it has finalised the Chinese joint ventures, at least, that could provide a boost of confidence for investors that might lift the shares.

For now though, I continue to avoid adding Ceres Power to my portfolio. Its consistent lack of profitability and lack of a proven long-term business model continue to concern me. I would want more hard evidence of financial success at the company before considering adding it to my portfolio.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Investing in growth shares can be very lucrative. But it sometimes also turns into a financial horror story. Here is how I try to value growth shares in a way that helps me decide whether they might be a good addition to my portfolio.

How to value shares

First I think it is worth remembering that a share is a share.

Whether I see a particular investment opportunity as a growth share or income share, my ultimate aim is the same. I want it to produce more value for me in future than I pay for it today, discounting for the fact that as a long-term investor my money will often be locked up for years in the investment.

That value might come from an increase in share price, dividend payments, or a combination of both. In the case of growth shares, many (though not all) invest their profits in growing the business rather than paying dividends. So often it is the opportunity for share price appreciation I consider when weighing up whether to add growth shares to my portfolio.

Vanishing trick

If I showed you a trick of turning a £10 note into a pound coin, you might be impressed. But if the £10 note belonged to you, you would likely not be very happy.

Yet that is exactly what many people do when investing in growth shares – and on a far bigger scale. The need to invest for growth, especially if revenues remain small or non-existent, means that companies burn through cash and rack up large losses rather than making profits.

That is why I do not own shares in battery companies at this point, even though I see the long-term potential in the business sector. Whether it is Ilika Power (down 56% in a year) or AFC Energy (70% lower over the past 12 months), burning cash is the opposite of what I want a company to do for me to buy its shares.

Long-term treat

However, many growth companies are at an early stage in their development. It may be necessary to lose money for a period of time to grow their business. Just because a company is losing money hand over fist today does not necessarily mean that it might not be highly profitable in future.

However, I am willing to forego some possible returns by not getting into a share very early, in order to increase my likelihood of reward.

On a practical level that means that when hunting for growth shares to buy, I try to look either for evidence of existing profitability or at least a clear path to profitability. For example, that could be reflected in a trend of strong sales growth from a sizeable base combined with a trend of sharply declining losses. Simply having a promising business idea is not enough!

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Over the past month — as usual — I have been looking for attractively priced shares in great businesses. I have bought into some large blue-chip names but also cast my net wider. I ended up investing in some shares that are members of the FTSE 250 index, including the three below.

Here is why the investment case and share price for each attracted me.

Direct Line

For most people, the financial services company Direct Line (LSE: DLG) needs little introduction. Its iconic red telephone logo is ingrained in the mind of millions.

That is good for the business: it currently has over 9m insurance policies in force. I like the economics of the general insurance business in which Direct Line competes. Demand for lines such as home and motor insurance tends to be resilient; motor insurance is mandated by law for most vehicles. If an underwriter has sufficient volume, it can usually predict claims volume as a percentage of policies and price its services accordingly.

That helps explain why Direct Line is profitable. It has a juicy 11.2% yield to boot. That has risen thanks to a 30% fall in its share price over the past 12 months.

Car price inflation hurting profit margins concerns investors. A fall in the number of policies in force also threatens sales and profits. But as a long-term investor, I hope Direct Line can overcome such difficulties and let its underlying business model help it perform well.

Dunelm

I owned homeware retailer Dunelm (LSE: DNLM) at the start of October.

The shares have fallen a third in the past year. Perhaps that is explained by investor concerns that consumers with less spare money will cut back on purchases for the home, hurting sales and profits at Dunelm. Revenue in the most recent quarter declined 8% compared to the same period a year ago. Gross margins also fell, which could be bad for profitability.

But Dunelm is a quality operator with a proven business model. It has maintained its guidance for the full financial year, of profit before tax in line with analysts’ expectations of £130m-£193m. That would be a decline from last year’s record results but still solidly profitable. A price-to-earnings (P/E) ratio of just 10 looks attractive to me. I bought more of these FTSE 250 shares this month.

ITV

What is the future for traditional television companies?

Maybe it is continuing to run old school operations, which can still throw off large advertising revenues. Perhaps it is utilising decades of expertise to expand business by producing content, both for themselves and other media properties. It could also be moving into the digital arena.

The UK broadcaster ITV (LSE: ITV) is doing all three. The FTSE 250 company remains solidly profitable, making more than a million pounds a day on average last year in pre-tax profit. The City seems not to like the company’s strategy, though, with ITV shares falling 36% in the past year.

I do think an advertising downturn could hurt revenues and profits at ITV. But the P/E ratio of under five, combined with a prospective dividend yield of almost 8% based on management guidance, make the shares very attractive to me. I increased my holding this month.

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C Ruane has positions in Direct Line Insurance, Dunelm Group, and ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It has been a lively time on the UK stock market, with some prices falling heavily in recent months. On its own that does not mean that they are cheap. But when I see quality companies trading at what I think is an attractive price, I consider buying them for my portfolio. That was the rationale behind a hat-trick of FTSE 100 share purchases I made in October after their prices had fallen.

Howden Joinery

I had been thinking about buying into timber merchant Howden Joinery (LSE: HWDN) for a while.

The investment case is strong in my opinion. By developing relationships with trade customers, the company is able to attract repeat custom often with substantial sales volumes. The nature of the business and transportation costs means that Howden’s national network of local depots can help give it a cost advantage over farther flung suppliers. It has proven its business model can be very profitable.

Worries about a declining housing market have hit its shares hard, though. They have fallen 44% in value over the past year and now trade on a price-to-earnings ratio in single digits.

I recognise that a fall in house sales could hurt revenues and sales. But I expect renovations of existing properties to help support sales. In the long term, I reckon Howden’s robust business model could support a higher share price again.

JD Sports

I already owned shares in JD Sports (LSE: JD) before October.

Owning shares and watching them decline can cause investors to behave emotionally. JD’s decline of 55% over the past year is even worse than Howden’s.

That reflects concerns about management changes at the FTSE 100 retailer as well as the risk of inflation eating into profit margins. On top of that, if consumer discretionary spending falls, the market for sportswear could decline, hurting sales.

But as a long-term investor, I aim to behave rationally not emotionally. I take a similar view to JD as I do when it comes to Howden. I expect strong long-term demand in its market space. Within that space, it has an attractive position thanks to a large customer base, established brand, and proven business model.

Those assets could help support the business, which expects to deliver results this year in line with last year’s all-time record figures. I happily used the falling JD Sports share price as a buying opportunity for my portfolio.

Legal & General

A FTSE 100 share I had owned previously but no longer held coming into October was financial services provider Legal & General (LSE: LGEN).

But I saw a fall in the Legal & General share price as an opportunity to add the company back into my portfolio – and pounced on it. The shares are 20% lower than they were a year ago.

A worsening economy could hurt investment returns for the company. If that happens it may lead to sales and profits shrinking. But in the long term, I think the firm’s financial services expertise could help it attract and retain customers. It has a large customer base and very strong brand thanks to its multi-coloured umbrella logo.

Legal & General’s dividend yield of 7.9% is higher than many FTSE 100 peers. It should make the shares a useful addition to my passive income streams.

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C Ruane has positions in Howden Joinery Group, JD Sports Fashion, and Legal & General Group. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It has been a disappointing time to be a shareholder of banking giant Lloyds (LSE: LLOY). Last November the shares started the month trading just above 50p apiece. Since then, the Lloyds share price has fallen 20%.

But there are signs of positive news for the banking industry as interest rates rise. So, should I start buying Lloyds shares again now for my portfolio while I can still bag them at the current price?

Some good news for banks

Higher interest rates can be bad for borrowers because they need to pay more when servicing their loans. But that can be good for banks as they stand on the other side of the transaction. As the UK’s largest mortgage lender, I think this could be a key benefit for Lloyds from interest rate hikes. That might help support an increased share price.

Indeed, in the bank’s third-quarter trading statement released last week, there was already evidence of this happening. Underlying net interest income for the first nine months came in at £9.5bn, a 15% increase over the same period last year. I expect interest income may remain elevated for the foreseeable future due to higher rates.

Bad news too

But already we also see some evidence of how higher interest rates, along with a worsening economy in general, could be bad for the bank’s financial performance.

Statutory profit before tax for the quarter fell 26%. It still came in at £4bn, which is a lot. Lloyds has a market capitalisation of £28bn, so its shares continue to trade on a low price-to-earnings ratio. That could make its current valuation look attractive. But the fall is a large one. Moreover I think we are only seeing the start of how higher interest rates might impact profits. Next year could be worse.

The financial services powerhouse also changed its outlook for the year, specifically citing interest rate changes as a risk when it referred to “the balance of risks shifting from Covid-19 to increased inflationary pressures and rising interest rates”.

That led to a gloomier outlook than Lloyds had before. For example, it increased its expected credit loss in the first nine months of 2022 from £4.5bn at the start of the year to £5bn now. Big interest rate rises have only kicked in fairly recently for many borrowers, so I think such news could get worse over the winter and into 2023.

I’m not tempted by the Lloyds share price

That is why, despite the Lloyds share price falling and a dividend yield now exceeding 5%, I will not be adding it to my investments any time soon.

I think it has real strengths, from its large customer base to a strong assortment of banking brands. If investors focus on those and the economy suddenly shows signs of recovery, the Lloyds share price could start to turn around.

I would be surprised to see that in November though. The UK economy is struggling and rising interest rates could mean higher default rates eating further into Lloyds’ profits.

That could be bad for the Lloyds share price in November and beyond. For now I see better opportunities for my portfolio elsewhere in the UK stock market.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A lot of people hit a certain point in life with little in their bank account. Rather than sit and worry about that, I would find it more useful to figure out a plan to try and change it! That is why I would look to learn from investors with a proven track record of success, like billionaire Warren Buffett.

Here are five practical steps I would take to try and apply the Buffett method to my own investing.

Invest for the long term

Buffett has a long-term investment mindset. He is not trying to earn money that can pay for his living expenses next month. Instead, he has always been thinking far ahead with the aim of building substantial wealth.

Today’s financial needs can seem pressing. But taking a long-term mindset can help us make great investments and benefit from their performance over the years.

Stick to what you know

Buffett is fanatical about sticking to his circle of competence when investing. That means he only invests in companies he understands. Successful investing is about spotting great opportunities that are available at an attractive price. To assess valuation, it is essential to understand a company’s business model.

Focus on downside risk not just upside potential

Buffett says that the first rule of investing is not to lose money – and the second rule is never to forget the first one. That may sound trite, but I think it is actually profound advice that could help me build my wealth.

It can be tempting to try and make up for lost time by investing in risky but potentially lucrative shares. Buffett takes the opposite approach. Although he looks at the possible upside of an investment, he pays close attention to risk indicators. If a share looks too risky for his comfort he will not buy it, regardless of how rewarding it could potentially be.

Adopt a valuation method

How do you know whether a share might be a good investment? Different investors use a variety of methods, from looking at the firm’s likely future earnings, to analysing their balance sheet. It may be that different methods can be helpful, but what is key is that Buffett always uses one method or another to value a company.

He does not buy shares just because he has a good feeling about them or has seen their price crash. Instead, he assigns them a valuation and compares it to the current share price. He already thought American Express was a great business, but it was only when its share price crashed in the early 1960s that he considered the valuation attractive enough to merit buying the shares.

Investing without using a valuation method is not really investing, in my opinion – it is simply speculation. Like Buffett, I always use at least one valuation method when weighing up shares I could buy.

Wait for brilliant opportunities

Starting to invest in our thirties or forties, it is easy to feel rushed. That can be a costly mistake. Buffett ignores investment opportunities he thinks are simply good – and waits for ones he thinks are great. That might mean waiting for years.

I think adopting that patient approach can help me as I try to build my wealth.

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American Express is an advertising partner of The Ascent, a Motley Fool company. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.