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

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »