With £3k to invest, I’d buy shares like Warren Buffett does to get rich

Warren Buffett buys stocks with good-quality underlying businesses when the valuations are reasonable. Here’s where I’d look.

| More on:

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.

The world’s most-quoted and best-known investor, Warren Buffett, made headlines recently because he didn’t invest in airline stocks. Instead, he sold the ones he already owned.

For many, that was a confusing moment. Usually, Buffett is known to load up with shares when they are on sale. Often, that means he’s out buying stocks when other investors are either selling them or avoiding them. But his reluctance to buy or even hold airline shares does make sense in the context of his usual investing style. Normally, he buys shares of good-quality businesses when they are selling at reasonable valuations.

And it’s hard to view airline companies as owners of good-quality businesses. Often, airlines are loaded with debt, and operations are highly cyclical. That means they are sensitive to changes in economic conditions. So the arrival of a pandemic was particularly hard on them.  

Not even Warren Buffett can predict the future

Not even Buffett can predict the future. And he had no idea what the future would look like for the airline industry. So it seems he didn’t want exposure to a sector that could suffer further if a second wave of the pandemic arrives. 

However, some businesses have been remarkably resilient through the coronavirus crisis. For example, the fast-moving consumer goods sector has been robust, and I reckon we can find many attractive shares within it.

In the FTSE 100, I like the look of Unilever (LSE: ULVR). The firm is a giant in the sector and owns many strong brands in the areas of food, home care, and personal care. You probably know many of them such as Hellman’s, Marmite, Domestos, Cif, Dove, Radox, and others.

In June, the company announced plans to ditch its complicated dual-listed structure. Instead, it will convert to a single parent company listed on the London stock market. The directors reckon the change will lead to a simpler set-up with “greater strategic flexibility, that is better positioned for future success”. 

Flexibility in a dynamic business environment

I reckon it’s a great idea. The firm has been chewing it over for around 18 months with a “comprehensive review”. And the directors think the new arrangement will help the company evolve its portfolio “including through equity-based acquisitions or demergers”.  They reckon that kind of flexibility is even more important because of the “dynamic business environment” the Covid-19 pandemic will create going forward.

Simplification is almost always a good thing, and I reckon the new, nimbler Unilever will emerge as an ongoing success story in the years ahead. To me, the firm is a good candidate to consider for a £3k investment as part of a diversified portfolio. Similarly, I’d also run the calculator over tobacco supplier British American Tobacco, drinks supplier Diageo, and fast-moving consumer good operator Reckitt Benckiser.

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.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Diageo. 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

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 »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Is the S&P 500 going to 10,000 by 2030? This expert thinks so

One stock market strategist sees animal spirits taking hold and driving the S&P 500 index even higher by the end…

Read more »

Investing Articles

I’m expecting my Phoenix Group shares to give me a total return of 25% in 2025!

Phoenix Group shares have had a difficult few months but that doesn't worry Harvey Jones. He loves their 10%+ yield…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

14.5bn reasons why I think the Legal & General share price is at least 11% undervalued

According to our writer, the Legal & General share price doesn’t appear to reflect the underlying profitability of the business. 

Read more »