If I achieve a very small percentage of what Warren Buffett has achieved in investing, I’d be over the moon!
Putting aside my lofty dreams and ambitions, I still use the ‘Oracle of Omaha’ as an inspiration, and try to take heed of his lessons to shape my holdings.
I bought Sage (LSE: SGE) shares around two years ago now. Here’s how his brilliant mind helped shape my decision!
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Industry leader
Looking at Buffett’s portfolio, he’s an advocate of buying the best businesses in their respective industries. A good example of this is the fact over half of his holdings are in Apple.
With Sage, the FTSE 100 incumbent has risen from humble beginnings, to one of the biggest software-as-a-service (SaaS) firms in the sector. I reckon the story could make a good series or film one day. The business has grown superbly along the way, and is certainly regarded as an industry leader in its own right with its market share and innovative products.
Next, Buffett is happy to pay a premium for an established business doing well, rather than buying cheap shares in an ailing business.
Sage shares trade on a price-to-earnings ratio of 38, which could be considered expensive. However, I purchased the shares when they were nowhere near this level, so at the moment, I’m up, on paper.
Passive income
It is reported that Buffett earns over a million pounds a day in dividends from just one of his holdings, Coca-Cola.
From that it seems that buying stocks with good prospects for dividends is a core part of his investing strategy.
Sage shares currently offer me a dividend yield of 2%, and I’ve received dividends since I’ve owned the shares. I’d love for this level of return to increase as the business continues to grow as well.
Risks to note
Despite his phenomenal record of investing and building wealth, Buffett is human, and has made mistakes in the past. He confesses to these many times. This shows me just how good he is to learn from them, and share his experience with his fans and followers.
Two issues worry me when it comes to my holdings in Sage. Firstly, its current valuation is a risk, as the shares are trading at all-time highs. Any negative news or trading could send them tumbling.
Next, the current artificial intelligence (AI) boom threatens the status quo of traditional tech. Sage could find its products are under threat from AI-related disruptors. This could hurt potential future performance and returns I’m hoping to make.
The long game
One of the best lessons I’ve taken from the investing guru is investing for the long-term. He references this by saying, “Our favourite holding period is forever”.
However, I’ve shaped my own investing approach as a long-term investor by thinking of stocks I’d buy and hold for a five to 10-year period at least. This would allow them to grow, and generate returns for me over an extended period of time.
I’m two years into my journey with Sage, but can see myself keeping hold of these shares for a number of years yet.
