With the cost-of-living crisis still raging, not everyone’s as lucky as Warren Buffett to have a fortune in the bank. In fact, there are an estimated 8.7 million people living in Britain with no savings, with more than 11 million having less than £1,000 as we enter 2025.
For those who have debts or lack an emergency fund, putting money aside to fix this issue is likely a sensible priority. In fact, even Buffett has advised that paying off credit card debt is a critical step on the wealth-building journey. But for those who have a bit of cash saved up and no high-interest borrowings to worry about, now could be an excellent time to follow in the footsteps of successful investors when aiming for long-term financial freedom.
Focus on long-term quality
A quick glance at the portfolio of Buffett’s investment firm, Berkshire Hathaway, reveals that most of his positions are fairly dull. In fact, most of it consists of consumer-focused brands, financial services, and energy providers.
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Yet despite the lack of cutting-edge biotech or skyrocketing AI stocks, Buffett’s investment track record’s been pretty extraordinary. That’s because even boring businesses can be lucrative investments if they’re of high quality and priced at a reasonable valuation. In fact, with most investors chasing the hype train, finding undervalued high-quality businesses in industries or sectors being ignored becomes far easier.
But what makes a business high quality? There are two sides to this equation. There’s the quantitative aspect revolving around the financials, growth opportunities, and cash flows. However, there are also qualitative traits to consider. And this latter part is where Buffett spends a lot of his time searching for competitive advantages.
Having an edge over rival firms that’s sustainable and hard to replicate can be the difference between mediocre and market-beating returns. It’s how companies like Apple rose to industry prominence, lending them enormous pricing power and cult-like customer loyalty.
These advantages can come in many different forms, from a reputable brand to a novel operating model or access to a unique resource. It’s up to investors to uncover these intangible traits. The more advantages a business has, the more likely it could thrive in the long run if the financials are also in good shape.
A top Buffett stock to consider now?
Following Buffett’s investment philosophy has resulted in a lot of monopoly-like stocks entering my portfolio. And one that I share with him is Mastercard (NYSE:MA).
The digital payment processor likely doesn’t need any introduction, with over 3.4 billion cards issued worldwide. While it still battles in close competition with Visa, the firm continues to benefit from a powerful network effect advantage. The more Mastercard credit and debit cards there are in circulation, the more merchants want to accept these cards to complete transactions, which, in turn, attracts even more cardholders in a value-building loop.
In recent years, regulators have begun probing the card payment sector, with both Visa and Mastercard becoming subject to anti-monopoly legislation. And continued regulatory intervention on fees could impede future returns for shareholders.
Nevertheless, with operating margins sitting above 55%, the days of being a cash-generating machine seem far from over, in my opinion. So I think it’s a stock investors should consider in 2025.
