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3 ways to invest like Warren Buffett

Tristan Harrison
Warren Buffett

This article isn’t going to teach you how to create returns of 20% per annum over many decades – if only it were that easy – but I will hopefully share a couple of things that will help invest more effectively.

Here are three ways that you can invest like the great investor, Warren Buffett:

Invest for the long-term

Warren Buffett is famous for investing for the long-term, indeed his favourite investment holding period is forever.

Whilst he may have started off investing in ‘cheap’ businesses, he shifted to a different style of investing thanks to Charlie Munger. When you have companies earning 20% or more on retained money, it compounds very nicely over many years. He thinks about how much a business will grow in 10 or 20 years, not the next 12 months.

Buy quality companies with moats

However, he doesn’t just invest in any business. He chooses ones that have strong products and/or an economic moat.

He loves Apple because a good percentage of the global population buys all their devices from the tech company – we do tons of things on our phones from checking share prices, to reading the news, playing games, responding to emails or doing some e-banking.

Businesses that have brand power, barriers to entry and good reputations with customers like Challenger Ltd (ASX: CGF), Costa Group Holdings Ltd (ASX: CGC) and InvoCare Limited (ASX: IVC) are solid examples.

Avoid risky businesses

“It’s only when the tide goes out that you learn who has been swimming naked.” Debt can kill a business. Businesses that require good management to be successful can become problematic if poor management are running that company.

Risky businesses can destroy wealth if they’re part of your portfolio. Just look at what happened with Big Un Ltd (ASX: BIG), Slater & Gordon Limited (ASX: SGH) and GetSwift Ltd (ASX: GSW).

Foolish takeaway

Whilst I will never be able to invest as well as Warren Buffett, we can certainly take a few of his investment lessons and improve our own thinking and process.

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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited, COSTA GRP FPO, and InvoCare Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited and COSTA GRP FPO. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.