Warren Buffett is, without doubt, the greatest stock market investor of all time. Not only has he outperformed the market by an enormous margin over his career, but he’s also built up a net worth of around $100bn from stocks.
In recent years, I’ve been applying some of Buffett’s strategies to my own portfolio and it’s worked wonders. His strategies have literally boosted my Stocks and Shares ISA by thousands of pounds. Here’s a look at three simple moves that have delivered amazing results for me.
Buffett invests in high-quality businesses
It’s often thought that Buffett tends to invest in ‘cheap’ stocks. However, a look at his portfolio indicates that this isn’t really the case. Plenty of stocks he owns are actually quite expensive. Take Mastercard, for example. It currently sports a price-to-earnings ratio of around 40.
The truth is that he’s more of a ‘quality’ investor. Ultimately, he likes to invest in high-quality businesses that have strong competitive advantages, and he’s prepared to pay a higher valuation for these kinds of businesses. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he’s said.
Following Buffett and shifting my focus to more expensive high-quality stocks (I used to invest in cheaper value stocks), has made a big difference to my returns.
One example here is Diageo. Since I bought it in 2017, it has returned more than 75% (not including dividends) despite the fact its valuation is much higher than the average FTSE 100 stock. Alpha FX is another example. Since I bought this British small-cap stock a few years ago, it’s risen about 200%. That’s despite the fact it had a high valuation when I bought it.
Buffett likes US stocks
One thing that stands out about Buffett’s portfolio is that nearly all of the stocks he owns are listed in the US. There’s a reason for this. Many of the world’s most dominant companies are listed there.
In the past, my portfolio was very UK-focused. However, around four years ago, I started following Buffett and ramped up my exposure to US stocks. This simple move has paid off in a big way.
For example, Apple (which is Buffett’s largest holding) is up about 250% since I invested in the stock. Meanwhile, Alphabet (Google) and Microsoft are up about 200% and 130% respectively.
These kinds of gains have made a massive difference to my overall returns and boosted the value of my ISA significantly.
Buffett holds onto his winners
A third strategy that has really helped my performance is holding on to my winners.
In the past, I’d often take profits off the table if a stock I owned jumped 30%, or so. I figured it was best to lock in some profits.
What I realised however, was that by doing this I was often missing out on huge gains. Often, a stock that had generated a gain of 30% would go on to generate a gain of 100%, 200%, or more.
So these days, I stick with my winners like Buffett does. In my view, this is the best way to generate massive gains from stocks.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares of Alpha FX, Alphabet (C shares), Apple, Diageo, Mastercard, and Microsoft. The Motley Fool UK owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), Apple, Mastercard, and Microsoft. The Motley Fool UK has recommended Alpha FX and Diageo and has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. 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.
This post was originally published on Motley Fool
