How to invest like Warren Buffett
By James Yeo
Warren Buffett is considered one of the greatest investors in the world, with a net worth of US$74.9 billion (S$104.7 billion) according to Forbes. This makes him, as of early April 2017, the world’s third-richest person in the Bloomberg rankings.
While Buffett – who is CEO and main shareholder of the Berkshire Hathaway holding company – made his fortune through astute investments, most of his investment principles are still relevant to the layman retail investors.
Here are three ways you can invest like the “Oracle of Omaha”.
1. Do not over-diversify
It is common for financial advisers to quote this popular saying: “do not put all your eggs into one basket”. In other words, they suggest that you must buy securities of different asset classes or sectors to diversify and limit your losses.
However, Warren Buffett has a totally different take. Instead, he understands that investing is not just about playing a game of investment to lose, but rather, playing a game that can lead to victory and generate great profits.
Therefore, one should follow Warren Buffett’s investment approach, to “keep all your eggs in one basket, but watch that basket carefully”.
2. Stick to your investment plan
A large part of 86-year-old Buffett’s success can be attributed to his patience and discipline. Over the decades, he has been steadfast about his investment strategy and seldom deviates from it, even when faced with immense pressure from the market participants.
Here’s one classic example:
During the late 1990s, Buffett was widely chastised by analysts and the press for failing to cash in on the boom in technology stocks. However, he got the last laugh when the bubble burst and he scooped up great businesses at bargain prices.
This serves as a good lesson for the investors, as most of them do not have a plan or even adhere to proven strategies. When you don’t have an investment plan to keep you on the main track, you can easily get swayed by opportunities that may sound attractive, yet prove otherwise.
3. Go for companies with sustainable competitive advantages
Buffett invests in businesses with durable competitive advantages, or, as he puts it, “economic castles protected by unbreachable moats”. By “moat”, he means something that gives a company a clear advantage over others and protects it against incursions from the competition.
If you have looked at his favourite holdings through history, they are mainly household names like Coca-cola, General Electric, Kraft Heinz and, more recently, even Apple. They are all market leaders which have carved a name for themselves.
Good companies with strong fundamentals like this do not come at a cheap price. However, Buffett advises: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Conclusion
As successful as Warren Buffett is, he has always been generous in sharing his valuable insights into successful investing. In order to emulate Buffett’s investment strategy, you should take the time and effort to learn more about his way of thinking and how to implement some of his strategies in your own way.
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