The billionaire investor Warren Buffett has done spectacularly well by making some fairly simple, easily understandable moves.
For example, his biggest holding, Apple (NASDAQ: AAPL), is now worth tens of billions of pounds more than he paid for it. Yet he did not start buying Apple stock in the 1970s or 1980s. He made the move in the past decade, when Apple’s success had already been clearly visible for many years.
Using three simple Buffett approaches to investing, I think I could realistically aim to turn a £20K lump sum into a portfolio worth £90K.
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1. Buy into brilliant opportunities not merely good ones
Warren Buffett has said he reckons his track record is largely down to one great decision every five years or so.
He is not constantly trading. Indeed he has said that if someone would not consider holding a share for 10 years, they should not even consider owning it for 10 minutes. His approach is to buy fewer shares he thinks can do brilliantly than a broader selection that he hopes might just do quite well.
Apple, up 16% in the past year alone, demonstrates the point.
Owning a few shares increasing in value by 16% each year, it would take 11 years for a £20K portfolio to become worth more than £90K. By contrast, owning a wider selection of shares with a lower growth rate would take longer.
2. Let the head rule the heart
In practice, though, how does Warren Buffett do that?
He does not love Apple and indeed is known to have shunned using a smartphone personally for many years.
Buffett sometimes uses emotional language when discussing his investments, but in reality he is highly rational. A large part of his research consists of combing over publicly available information.
Like Buffett, I can judge Apple’s popularity for myself. I can also see elements of its business model that make it potentially attractive as an investment. It has a strong brand, loyal customer base, large target market, and benefits from an ecosystem of products and services. Looking at its financial reports, I can see that last year it earned $97bn.
Still, that was lower than the previous year and I see risks for the tech giant including a weak economy hurting consumer spending power.
At the moment, I am not buying Apple shares not because I dislike the company but because the share price looks high to me. When Warren Buffett started buying, the valuation looked more attractive.
3. Taking the long-term approach
Having bought his Apple shares, Buffett has simply hung onto most of them, collecting dividends regularly along the way.
Warren Buffett is a long-term investor. Doing that lets him reap the rewards of buying into brilliant businesses for less than they turn out to be worth.
Taking a similarly long-term buy and hold approach, I think I could aim to turn £20K into £90K.
