Across his years of investing, the legendary Warren Buffett has built a fortune comfortably over $100bn.
During his tenure as CEO of Berkshire Hathaway, Buffett has more than pleased shareholders with an impressive average annual return of around 20%. That’s double the return of the S&P 500.
As an investor, I have nowhere near the experience Buffett has amassed over the years. Therefore, looking to the Oracle of Omaha for some inspiration seems like a smart idea. As I continue to build out my portfolio, here are the Buffett methods I’m using to be successful.
Invest in what you know
My favourite method used by the legendary investor is to invest in companies you know and understand. This means owning businesses where you can easily appreciate their core features.
A simple way of doing this is by understanding how a company makes money and what influences its industry. By doing so, you eliminate uncertainties and avoid the risk of running into complex issues that impact the company’s performance.
Buy for the long run
Another method I’d adopt is investing for the long term. Buffett himself once said: “if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”.
The stock market is inevitably volatile. And this has been clear to investors in the last few years with the pandemic and its knock-on effects. However, these short-term peaks and troughs are nullified with a long-term approach.
Buffett has stakes in a host of companies that he’s held for years, such as Coca-Cola. By replicating this approach, I’d aim to build wealth in the long run.
Finally, Buffett has talked about being greedy when opportunities in the stock market arise.
This was most certainly the case in the global financial crash of 2008 when he snapped up a variety of stocks for a cut-down price. And with the declines we’ve seen across global markets in the past few years, this message resonates once again.
With many stocks taking a hit in recent times, this presents an opportunity for me to add high-value companies to my portfolio for cheap.
What should I buy?
So, with the above in mind, what stocks should I be adding to my portfolio?
Well, while I don’t have any spare cash right now, if I did, I’d look to companies like Apple (NASDAQ: AAPL).
The value of the business is easy to understand, with over one billion people using Apple products.
Looking at the long-term returns of the stock, it’s also clear to see the attraction of Apple. While past performance is no indication of future returns, the last five years have seen it rise an impressive 273%.
The tech company is Berkshire Hathaway’s largest holding, making up nearly 50% of its portfolio. And at the firm’s recent annual shareholders meeting, Buffett labelled Apple as the best business he owns.
As Buffett said: “someone is sitting in the shade today because someone planted a tree a long time ago”. I’d hope that if I bought Apple today, I’d hold it for years to come and generate some healthy returns.