Can you make a million investing like Warren Buffett?

Karl 5th Jan 2023 No Comments

Reading Time: 5 minutes

Famed for his quirky quotes and insightful tips, Warren Buffett is arguably the most well-known investor on earth.

The 93-year-old is said to be worth a cool $121 billion (£95.5bn) which makes him the fifth richest person in the world.

But is Warren Buffett simply a lucky outlier? Or can normal investors take inspiration from him when building their investment portfolios?

In this article we’re going to dive into Buffett’s background, look (and laugh) at some of his most popular quotes, and explore how investors might try to emulate some of his success.

Keep reading for all the details or click on a link below to jump straight to a specific section…

Who is Warren Buffett?

Born in August 1930 in Omaha, USA, Warren Buffett is the chairman and largest shareholder of Berkshire Hathaway.

Originally a textiles company, Berkshire Hathaway is today a multinational investing conglomerate known for buying large stakes in companies across multiple sectors including insurance, energy, retail, and technology to name but a few.

Buffett has been Berkshire’s chairman since 1970 – yes, over 50 years – and currently holds a 15.6% stake.

Thanks to his enormous success in picking stock market winners, plus a knack for coming up with catchy and insightful quotes, Warren Buffett is probably the most-famous investor in the world. If you’ve ever picked up an ‘investing for beginners’ textbook, then you probably didn’t turn many pages before coming across his name.

While Warren Buffett has lots to say about investing, he’s particularly fond of value investing and seeking a ‘margin of safety’ when choosing stocks. He’s also a proponent of keeping things simple, investing for the long-term, and buying blue-chips – especially blue-chips that pay dividends and have a competitive advantage in their industry.

What are some of Buffett’s best quotes?

As Warren Buffett has been in the investing game for over half a century, you won’t be surprised to learn that the 93-year-old has said some memorable things in his time.

Here’s a handful of Buffett’s most well-known investing quotes (in no particular order)…

1. “Our favorite holding period is forever.”

Written in Berkshire’s letter to shareholders in 1988, this quote highlights Buffett’s belief that ‘buy-and-hold’ is a winning investment strategy. The quote essentially jokes that, in an ideal world, Berkshire would never sell any of its stock. Instead, it would buy stock to hold onto it forever, while reaping the rewards of compound interest!

Buffett would later follow on from this quote eight years later, writing to Berkshire’s shareholders in 1996: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

2. “Price is what you pay, value is what you get.”

In this quote Buffett points out the fundamental difference between value and price.

This is why Warren Buffett is a big fan of ‘value investing’ – a strategy that refers to buying stocks that are trading for less than their intrinsic value. (See our article that explains how to invest using fundamental analysis to learn more about the ins and outs of value investing.)

3. “It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.”

Another one of Buffett’s well-known quotes explains that investors should avoid buying junk, even if a stock appears cheap. This belief probably explains why Buffett prefers to buy blue-chips over investing in companies that are still growing.

The quote also suggests that investors should be wary of investing in companies that are failing, just because there’s chance they’ll experience a quick change of fortune.

4. “Never invest in a business you cannot understand.”

While it’s one of Buffett’s most straightforward quotes, it’s probably also one of his most important!

The quote perfectly summarises Buffett’s belief that investors should avoid putting any capital into a business or businesses that they do not understand. The quote also complements another of Buffett’s famous sayings: “Risk comes from not knowing what you’re doing.”

5. “Never depend on a single income. Make an investment to create a second source.”

In this quote, Warren Buffett highlights the importance of diversifying when it comes to your finances. The quote stresses the benefit of establishing more than one source of income, and that investing – especially dividend-paying stocks – can be one way to go about it.

What does Warren Buffett invest in?

We’ve previously explained that Warren Buffett likes to invest in blue-chip companies so you won’t be flabbergasted to learn that Berkshire Hathaway has substantial holdings in a number of corporate giants.

By market value, Apple Inc is Berkshire’s largest holding with its stake worth in excess of $177 billion (as of the end of Q2 2023). In fact, Apple stock makes up almost 50% of Berkshire’s entire equity holdings.

Bank of America, Chevron, Coca-Cola, American Express Company, HP, Kraft Heinz, and Occidental Petroleum are other big-names in which Berkshire Hathaway owns at least 100 million shares.

If you’re keen to discover what else Berkshire’s Hathaway invests in, you can take a look at CNBC’s Berkshire Hathaway Portfolio Tracker.

Can you make a million investing like Warren Buffett?

As with any type of investing, there’s always a chance your portfolio will fall in value. As a result, there’s no sure fire way of becoming a millionaire investor. (Not unless you you start with a million, anyway!).

Yet if you want to emulate at least some of Warren Buffett’s success then it might be worth taking note of some of Buffett’s previous comments about the benefits of ‘passive investing’.

Why Warren Buffett likes passive investing

Passive investing is a ‘buy-and-hold’ portfolio strategy for investors with a long-term investment horizon.

Essentially, the goal of passive investing is to earn average market returns while keeping investment fees as low as possible. That’s because the typical passive investor recognises that he/she is unlikely to ‘beat the market’, so will instead prefer to gain exposure to multiple shares through a low-cost index fund.

At this point we’d usually explain this paragraph in more detail. This time, however, we’ll leave it to the man himself…

“In my view, for most people, the best thing to do is to own the S&P 500 index fund. People will try and sell you other things because there’s more money in it for them if they do.

“I think that the people who buy those index funds, on average, will get better results than the people that buy funds that have higher costs attached to them, because it’s just a matter of math.”

In other words, what Buffett is explaining here is that the everyday, normal investor is unlikely to outperform the stock market if they choose their own investments. And because picking and choosing your own investments (active investing) is often far costlier than buying an index fund, the average passive investor is likely to find themselves better off than the average active investor.

So then, if you want to follow Warren Buffett’s advice, buying an index fund, or exchange traded-fund (ETF) could be the way to go.

Of course, if you want to mirror Warren Buffett’s investing strategy more closely, then – aside from buying multiple shares in major blue-chip companies – you’ve also the option of directly buying shares in Berkshire Hathaway.

Disclaimer & Investing Newsletter:

Are you keen to learn more about investing? Why not sign up to the fortnightly MoneyMagpie Investing Newsletter? It’s free and you can unsubscribe at any time.

MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.