Can I use the Warren Buffett method to invest £300?

Famed investor Warren Buffett has developed a clear set of principles he uses when deciding whether or not to buy shares in a company. I think parts of his approach can also help me as a private investor with very limited funds available. But can the Warren Buffett method really help me if I only want to invest a few hundred pounds?

I think it can – here’s why.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Click here to claim your free copy now!

Managing risks

The smaller the amount I invest, the bigger risks I face in some ways. With billions of dollars to invest, Buffett can spread it across a large number of companies. That is more difficult for me to do if I only invest £300. I can still diversify, but realistically probably only across only two or three shares. In such a concentrated portfolio, one share performing badly has more impact than if I had 10 or 20 different companies in my portfolio.

Buffett’s comment that “rule number one is never lose money. Rule number two is never forget rule number one” definitely applies to me as a small investor. Of course, it is impossible to know how a share may do in future. But by only investing in companies I think come with small risks, I can put the Sage of Omaha’s words into action. As an example, consider Cineworld and Vodafone. There is a risk that both companies could find earnings are not big enough to pay their debt. But I see this as a much bigger risk at Cineworld than at Vodafone.

Sticking to my circle of competence

One mistake some investors make when investing small sums of money is chasing high returns by investing in companies they do not understand.

The Warren Buffett method emphasises sticking to one’s “circle of competence”. In other words, Buffett reckons an investor ought not to put money into companies or business areas he does not understand.

Whether investing £300 or £300m, I think that rule still applies. Even in industries I understand, I can make mistakes when assessing a company’s prospects. If I do not understand the industry in the first place, my chance of being able to judge a share’s prospects falls even more.

The Warren Buffett method and the long view

With £300 to invest in shares, lots of buying and selling could mean much of my money gets eaten up fast in commissions and trading fees.

Again, I think I would do better to apply the Warren Buffett method. The famed investor applies a long-term approach to investing. He follows a buy-and-hold investment strategy. As the name suggests, this involves buying shares and then holding them for the long term. If one selects companies with strong prospects, this could help returns compound over time. It also has the benefit of reducing transaction costs due to making fewer trades. With just £300 to invest, such costs could reduce my capital fast. So once again, applying the Buffett approach could help me.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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.

Add a Comment

Your email address will not be published. Required fields are marked *