Warren Buffett is a world-renowned and legendary investor. As CEO of Berkshire Hathaway, he oversaw over 50 years of market-beating returns. Since 1965, Berkshire Hathaway returned 20% annually. This is double the annual 10% return from the S&P 500 during the same period.
To say the least, Warren Buffett is an experienced investor. And over the years, he has provided many words of wisdom for budding investors all over the world. Let’s take a look at my favourite investing tips from the Sage of Omaha.
Buy great companies
Buffett once said: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
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His investment criteria has changed over the decades. He used to look at the cheapest value stocks, but these days he reckons it’s better to buy high-quality businesses at fair prices. I’d take this to mean companies that offer durable competitive advantages, or what Buffett calls an economic moat.
To find these, I look for companies that can sustain a high return on capital employed for many years. Berkshire Hathaway’s largest holding is currently technology giant Apple. This isn’t much of a surprise to me as Apple is a high-quality business with a sustainable competitive advantage.
Greed and fear
One of my favourite Warren Buffett quotes is: “Be fearful when others are greedy and greedy when others are fearful.”
Stock prices move for a number of reasons. In addition to business fundamentals, there are also psychological factors. Greed and fear play a big part. When the stock market crashes like it did in March 2020, investor fear can often push stocks to oversold levels. Uncertainty can cause chaos and fear that can lead to more fear. Buffett reckons these are often the best opportunities to buy great companies and I agree.
Long-term thinking
He’s well-known for holding some companies for many years. He once remarked: “Our favourite holding period is forever.”
Instead of frequently trading stocks, Buffett prefers to buy right and sit tight. He has a long-term mentality and has held some companies (like Coca Cola) for many decades. Once a high-quality business is found, time is often needed to really make the most of a rising stock price. Buffett reckons short-term trading is not great for investment returns. He thinks it just adds to commission costs and potential capital gains taxes. He’s likely right, in my view. Patience is required to allow stocks to work.
What else would Warren Buffett buy?
Looking at my favourite Buffett tips has got me thinking. Which UK shares might the Sage of Omaha like? Well, I don’t know the answer to that question as there are so many factors and I can’t ask him. That said, there are some wonderful UK companies I like, I think he might like and that I’d love to hold for a long time. Some that come to mind include drinks giant Diageo, retailer Next, and property portal Rightmove. If If I’m right about these and I’m prepared to buy and sit tight, I feel I could make some great returns.
