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One Simple Way To Invest Like Warren Buffett

Many people agree that investing is vital to securing a comfortable retirement but are reluctant to take the first step. They are often hindered by several investment myths like “investing is a gamble” and “I don’t have enough knowledge to pit against the top brains in the industry”.

Investing doesn’t have to be difficult. Warren Buffet is a living legend who made his billions from investing in companies within his circle of competence at cheap prices. If a company’s underlying operations lies beyond his circle of competence, he doesn’t look at it. He also stays away from companies which are changing rapidly and are unpredictable.

During the late 1990s, Buffett was widely chastised by analysts and the press for losing his touch and failing to cash in on the boom in technology stocks. However, he got the last laugh when the bubble burst and he scooped up great businesses at low bargain prices.

Scouting for Investment Ideas

As an average investor, you may think that your circle of competence is rather small with your limited financial knowledge. In reality, you merely have to go through the products/services which you come across in your daily life or familiar with due to your course of work. Let’s take a look at some of the listed companies an average Singaporean will come across in the course of a day.

Many working adults usually have long working hours and often head down to a nearby shopping mall for a simple dinner and some window-shopping. One way is to look at some of the shopping malls that do you frequent. Frasers Centrepoint Trust (SGX: J69U) owns several suburban shopping malls such as North Point and Causeway Point. And of course there is CapitaMalls Asia (SGX: JS8) that owns and manages many shopping malls such as Ion, Plaza Singapura, Raffles City, and more.

Hungry for a snack, say a yummy curry puff? Many Singaporeans patronise Old Chang Kee Ltd. (SGX: 5ML) in between meal times.

Another way to get investment ideas is to go through the stuff you use regularly. If you are reading this write-up now, you will probably be connected to the broadband service provided by an internet service provider such as SingTel (SGX: Z74) or Starhub (SGX: CC3).

Price Still Matters

Finding companies that are easy to understand is only the beginning. Another crucial factor in Buffett’s overwhelming success is that he only loads up on undervalued stocks, giving him a wide margin of safety. As retail investors, it is possible to estimate a company’s intrinsic value based upon its financial statements and filings.

In short, invest in stable, fairly predictable businesses that are so simple to understand that you can explain how it makes money with ease. By doing that, you can stay away from risky investments and sleep soundly every night knowing that the stocks you invest in are in safe hands.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.   Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.