4 investing ideas from Warren Buffett

By Nicole Webb 22 April 2020 2 min read

Billionaire Warren Buffett is considered by some to be the godfather of modern-day investing.

He's known for his no-nonsense approach to money and investing.

Interestingly, the guy is one of the 10 richest people in the world, according to the 2019 Rich List from The Sunday Times, yet it appears he lives a relatively understated life.

He has lived in the same house for more than 60 years, sent his kids to public schools and is proud to own second-hand cars.

But because he's also one of the most successful investors around, we wanted to share what we think are some of his best investing ideas.

1. Leave stock picking to crystal balls

Buffet acknowledges that picking the right stocks is hard.

And even he doesn't always get it right.

"Because most people don’t know how to pick stocks. Most of the time, I don’t know how to pick stocks. It is not an easy game," Buffett says.

That's why Buffet recommends index funds, which offer broad market exposure. They don't shoot the lights out but are generally more predictable in terms of their performance.

The benefit of an index fund is they’re often cheaper than other types of investments and are known to generally perform in line with the broader market.

2. Opt for simple investments

Buffet is renowned for shunning companies that he doesn’t understand.

In his 2014 letter to shareholders, Buffett laid out the criteria for the types of businesses he favours.

One guideline is that he only invests in "simple businesses."

"If there's lots of technology, we won't understand it," he said.

To Buffet, it’s not so much a statement on technology. Instead, it reflects his reluctance to put his money towards something that doesn't resonate with him.

So, for example, if you don't understand cryptocurrencies or derivatives, stay away. That’s what Buffett might advise.

3. Buy quality, but cheap

To Buffett, an investment only represents good value if the price is right. It's the principle of value investing.

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down."

Blue chip stocks, which are considered established and financially stable stocks, are generally considered a value investment.

But they also can be priced high because they reflect the broader confidence in their performance.

When blue chip stocks trade at a significant discount, they can represent the type of 'marked down' quality investment that's appealing.

4. Invest for the long term

Buffet is a careful investor. He has said he spends much of his day thinking and reading, as it minimises impulse decisions.

In line with this approach, he also supports holding investments for the long-term, which many professional money managers also generally recommend.

But Buffet takes his long-term investing approach a step further.

“When we own portions of outstanding businesses with outstanding management, our favourite holding period is forever," he says.

Of course, Buffet is referring to quality investments, much like in his sock analogy.

When your investments are quality and your horizon is forever, you can ride out the waves.

4 investing ideas from Warren Buffett