If you are looking for successful investors to imitate, Warren Buffett should be at the top of your list. The 92-year-old has been running the successful conglomerate for many decades Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B)has been investing since he was 11 and is currently worth around $ 99 billion.
The thing is, you don’t want to copy Buffett’s investment moves outright, for a few reasons. For starters, he has a lot more funds than you. Your investment budget may not allow for a portfolio that contains 40 or more individual stocks.
Also, when Buffett invests in a company, he has expectations for its performance, expectations that aren’t advertised in detail. The way he goes against these expectations informs his future decisions to buy more shares, sell or keep his position stable. So even if you buy the shares Buffett bought, you may not know how to manage those positions afterwards. In addition, its operations in Berkshire Hathaway’s portfolio are only made public when the company submits Form 13F, which occurs approximately 45 days after the end of the quarter in which it made those operations. This is a long delay in the investment world. So, if you tried to mimic his moves directly, you’d want to blindly in real time.
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A better approach would be to adopt elements of Buffett’s style rather than copy his every move. This way, you can invest in your budget and adapt your risk to your situation. Here are three budget-friendly Buffett strategies you can implement today.
1. Lean on low-cost small cap ETFs
Buffett likes to invest in large domestic companies with proven track records, strong competitive advantages, and conservative balance sheets. He chooses his shares and holdings carefully, but that is not necessary.
You can get a quality portfolio of large American companies by purchasing a single share of an ETF. A S&P 500 The ETF will do the job. This index is made up of 500 of the largest and most successful companies in the country, assets that meet certain liquidity, capitalization and profitability thresholds. Another option would be to choose a “quality factor ETF”, which only holds stocks with solid fundamentals.
Whether you prefer a broad-based S&P 500 ETF or a more focused quality fund, consider the fund’s expense ratio before making your final choice. The expense ratio represents the amount that you are billed annually for fund expenses. It is better lower.
2. Keep investing during pushups
Buffett sees stock market dips as a buying opportunity. In his opinion, it is better to pay less for an action than more.
He can also afford to accumulate large amounts of money until he concludes that it’s a good time to buy, but you can’t. Staying out of business will only get you behind schedule on your long-term plan to grow your wealth.
For small retail investors, the best plan is to invest consistently, in good times and bad. Automate a monthly or biweekly investment in your favorite ETF and let it run.
When the market is strong, you can feel comfortable buying the required stock. When the market is down, you can feel happy about getting lower prices on valuable assets. You can also relax knowing that you don’t have to make any decisions. While your neighbors and friends panic about how to survive the recession, you will continue to invest as you wait patiently for the recovery.
3. Be patient
Speaking of patience, Buffett described the stock market as “a device that transfers money from the impatient to the patient”. In other words, short-term traders looking for quick profits are likely to lose, while long-term investors are likely to gain.
In investing, patience is measured in decades, not years. If you keep your ETF investment going for 20 years or more, you will see gains and earn dividends. There are sure to be some downturns along the way, but in the long run your results should be positive.
And here’s a funny fact to support this conclusion. The US stock market has never lost value over a period of 20 years or more. That story doesn’t guarantee that such patterns will continue into the future, of course. But it is reasonable to conclude that longer investment times are reliably more profitable than shorter ones.
Invest in quality, now and later
To invest like Buffett on a tight budget, start by setting up an automatic and regularly scheduled investment in a quality ETF with low fees. Stick with that plan for a few decades, increasing your contributions when you can, and then count your profits. Investing can really be that simple.
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Catherine Brock has no position in any of the titles mentioned. The Motley Fool has positions and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $ 200 call on Berkshire Hathaway (B shares), short January 2023 $ 200 put on Berkshire Hathaway (B shares) and short January 2023 $ 265 call on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.