Most people who are interested in investments or who read the business press will have heard of Warren Buffett. The man is recognised as an investment guru and his opinions are sought by everyone from the small time investor, up to the owners and directors of major international companies. It’s said that president and prime ministers value hid views. He invests via his company, Berkshire Hathaway, and is widely considered to be one of the world’s most successful investors. His nicknames include ‘the Oracle of Omaha’ and he is regularly ranked as one of the top ten wealthiest people in the world.
So how did he get started?
Buffett started investing whilst still in college, albeit with fairly small sums, but the fact that his father owned a stockbrokers meant that he was exposed to the world of finance from an early age. Whilst in college he started researching stocks and by the time he graduated he has accumulated a portfolio worth $90,000 in today’s money. By the age of 32 he was a dollar millionaire in his own right.
So how does he do it?
Mr Buffett takes a very measured approach to investing and is known as a ‘value investor’. In essence this means that you purchase a stock, or other investment, at less than its intrinsic value. He has little interest in fashions or trends in investments and tends to hold stocks for a very long time. This is not a strategy for making a quick buck and he is prepared to wait years for certain holdings to come good.
Can anyone do the same thing?
Theoretically anyone could do the same, but it does help if you have a team of investment analysts and a large amount of cash! Buffett invests in large cap stocks, which usually have a well-known brand name and a history of solid earnings growth. He prefers to buy stocks in businesses that he understands and with good management. In depth research and the ability to hold stocks for a very long time could allow the smaller investor to partially replicate his approach.
Is his approach right for everyone?
The Warren Buffett method can work for many people, but there are three things you need:
- A great deal of time to do detailed research
- A reasonable cash lump sum to get started, as fees will easily deplete small sums
- Patience, as this is not a system that provides fast returns
Theoretically anyone can take the same approach and it suits many, but it’s unlikely that there will be another Warren Buffett. Fortunately for people that are time poor there are a number of managed investment funds that take a similar approach. These funds are not likely to be the shining stars of the investment world, but will provide steady returns over a period of time.
Keren Bobker is an Independent Financial Adviser at Holborn Assets and writes at financialuae.me