Columnists

How to invest like billionaire Warren Buffet this year

NSEInvestors

How to invest like billionaire Warren Buffet this year. PHOTO | POOL

Warren Buffet is an American billionaire and investor. According to Forbes, he is worth $105.5 billion. Due to his stock-picking prowess, he is popularly known as the Oracle of Omaha.

He is widely regarded as the most successful investor of our time.

While we may not be able to replicate his success in stock market investing, we can learn some valuable lessons from his actions and advice.

He has increased his stake in Occidental Petroleum, a US-based fossil fuel mining, exploration, and manufacturing company, to 20 per cent.

Year to date, the stock is up 114 per cent.

He has made hundreds of similar trades in his investing career, and young investors should learn from him.

His most obvious and perhaps most valuable piece of advice is to invest in good businesses.

READ: How to invest wisely in stocks, treasury bills

This term refers to businesses that have a strong moat, or competitive advantage, that shields them from competitors.

Buffet emphasises the significance of understanding the business in which you are investing.

This entails conducting extensive research on the company, its products and services, its management team, and its financial health.

Simply, Buffet is telling you to invest in what you know.

Time is a key factor in Warren Buffet's investment success. He began investing at the age of 11 and is on at 92.

You must begin investing early in order to increase your chances of success.

Buffet is a big proponent of value investing. This involves buying stocks whose price is lower than the perceived intrinsic value.

For instance, if a stock’s intrinsic value is $200 and the market price is $160, he buys the stock hoping to make a profit once the market adjusts to the true value of the stock.

This means that, as a value investor, you must learn to find the intrinsic value of a business and compare it with the market value to find opportunities.

As the old Wallstreet saying goes, the time to buy is when there's blood in the streets, even if the blood is yours.

This refers to buying quality stocks in a bear market even if you already own some of the bleeding stock.

If you don't have a lump sum to invest in a stock, you can dollar-cost average (DCA) into it in Warren Buffet's style.

This entails consistently purchasing small amounts of the stocks as you build your position.

Trendy and hyped stocks mostly on the news are often overpriced or the opportunity has already gone. Buffet advises younger investors to avoid those and focus on value.

Do not overpay for quality stocks, he advises. Instead, it is better to wait while holding cash until the stock price goes down to a value investing entry price.

While investing, Buffet advises that too much debt is risky and unhealthy.

You should invest what you have and if you go for debt, make sure it is manageable.

While the price of a stock may become volatile due to short-term news, the company continues to offer its products to customers for profit.

READ: I have Sh1 million, which is the best investment option?

Buffet advises younger investors to focus on the business, ignore short-term news, and be patient.

The writer is markets analyst at FXPesa.