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15/11/2021
Morningstar Views: How to Invest Like Warren Buffett

Undoubtedly one of the most-respected investors ever, Warren Buffett's recipe for success is simple. It boils down to:

  1. Buy businesses, not stocks. In other words, think like a business owner, not someone who owns a piece of paper (or these days, a digital trade confirmation).
  2. Look for companies with sustainable competitive advantages, or moats. Firms that can successfully fend off competitors have a better chance of increasing intrinsic value over time.
  3. Focus on long-term intrinsic value, not short-term earnings. What matters is how much cash a company can generate for its owners in the future. Therefore, value companies using a discounted cash flow analysis.
  4. Demand a margin of safety. Future cash flows are, by their nature, uncertain. To compensate for that uncertainty, always buy companies for less than their intrinsic values.
  5. Be patient. Investing isn't about instant gratification; it's about long-term success.

Of course, what's simple in theory can be less so in execution.

 


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