When it comes to learning more about the stock market, there aren’t many better teachers out there than Warren Buffett.
Starting from near enough scratch, over the years he’s proven his worth as one of the best stock pickers of all time. Today, he sits on a net worth of over $137bn. His company, Berkshire Hathaway, has enough cash on hand to buy every NFL team and still have some spare change.
Buffett deals in figures larger than I ever will. But that’s not to say I can’t pinch some wisdom from the ‘Oracle of Omaha’. I plan to implement the methods Buffett has used for his investment strategy into mine. That way, I’m confident I can build my wealth.
The bigger picture
The most important tip to take away from Buffett’s strategy is one that strongly aligns with what we believe here at The Motley Fool. That’s to invest for the long term.
The stock market is surrounded by a whirlwind of noise. But Buffett ignores that. He’s been investing for over eight decades. He once famously said his “favourite holding period is forever”. He’s owned shares in companies such as Coca-Cola and American Express since 2001.
As simple as it sounds, you only have to look at Buffett’s track record to see the effectiveness of it. The market has proven time over that investing for the long run is the best way to reap its rewards.
Keep it simple
What I also admire about Warren Buffett is the fact he only invests in things he knows. Essentially, he only buys companies when he understands how they make money.
For example, he turned down the opportunity to invest in Amazon and Google’s parent company Alphabet because he didn’t understand their business models.
He missed out on some handsome gains. But there’s a lesson in that. There are a wide variety of companies and sectors out there to research and invest in. However, focusing on what you have a base understanding of can make the process much easier.
Applying it to my portfolio
But how can I apply this to my portfolio?
Buffett’s Berkshire portfolio consists of 47 companies. Yet there’s a company out there that he doesn’t own but I think he’d like. I’m talking about Safestore (LSE: SAFE).
Let’s break it down. Firstly, I can easily understand how the business makes money. It’s far from glamorous, but Safestore rents out storage units. It’s the largest of its kind in the UK. The firm is also making solid progress with its overseas expansion.
Secondly, while past performance is no indication of any potential future gains, an investment in Safestore 15 years ago would have returned 1,278.2%.
Volatility is inevitable. And the business faces risks going forward. High interest rates may see customers let go of storage space given higher rents. Increased borrowing costs could impact the firm’s ability to purchase new properties.
However, like Buffett, I’m ignoring that in favour of the long-term potential of Safestore. He likes to buy companies at cheap prices. Safestore trades on just 8.3 times earnings, so it ticks that box. I’m also a fan of its 4% dividend yield, too.
