These Warren Buffett investing tips could boost your Stocks and Shares ISA!

The Oracle of Omaha’s philosophy can be applied to any person’s portfolio!

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Over the last half-century, Warren Buffett has amassed a vast portfolio of businesses in the envelope of his Berkshire Hathaway holding company. Even though he deploys billions of dollars at a time, his basic philosophy and principles can be followed by any regular investor. Here are two pieces of advice from the Oracle of Omaha that I think ordinary investors should follow.

Protect your downside risk at all costs

Buffett’s insistence that the successful investor must never lose money at first glance seems like a truism. Of course investors should avoid losses! Who would argue with that? With any investment, there is a certain amount of risk involved. The whole point of investing is that you are making a prediction about the future value of an asset, and the person selling to you does not agree with that prediction. One of you has to be wrong, and the possibility that that person is you is the risk you are taking on. 

However, not all investments are equally risky. Some are boom-or-bust propositions, where you can either lose all of your invested capital, or win big and make your money back many times over. This is the case with venture capital and angel investing, where the majority of bets tend to lose money, and a minority win out. 

Other investments have a very different risk profile. A mature utility company whose share price has been hit by a cyclical downturn is probably not going to double in price over the course of a year. But it is also unlikely to go to zero, and it is these kinds of opportunities that value investors like Buffett like to feast on. Identify good businesses that are going through temporary difficulties, and avoid boom-or-bust companies. It’s a much easier – and less stressful – way of building a retirement pot than trying to find the next Google or Amazon.

Take the bargains offered by Mr. Market

One of Buffett’s favourite metaphors (actually invented by his mentor, Benjamin Graham) is Mr. Market: an imaginary investor who is driven purely by emotion. On some days he is manically optimistic, and will pay any price, no matter how high, to own your stocks. On other days he is terminally depressed and pessimistic, and will accept any price, no matter how low, to sell you his stocks.

Mr. Market is a hyper-realised version of a typical investor – no one is purely driven by their emotions. However, the market as a whole contains enough of this kind of behaviour that it does sometimes act in this way. It used to be thought that markets are perfectly efficient and that stock prices always reflect all available information. Accordingly, it wasn’t possible to buy an undervalued stock, since, by definition, stocks couldn’t be undervalued.

Unsurprisingly, Buffett posted some of his best returns during the period when this theory was most dominant (the 1970s and 1980s). Follow his example, and look to buy stocks when everyone else is desperately trying to sell them.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Neither Stepan nor The Motley Fool UK have a position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »