I’m using Warren Buffett’s core principles to protect my portfolio in 2023 and beyond

Since 1965, Warren Buffett has led Berkshire Hathaway to an average annual return of 20.1%. He’s one of the most successful investors of all time having adapted and thrived over decades of changing market conditions. And despite adapting, his core principles have remained consistent throughout.

Stock markets have been ugly in 2022 and there may be more pain to come. Now, more than ever, could be the time for me to invest like Warren Buffett. That’s easier said than done, of course. After all, Warren Buffett has more funding, better connections and greater influence than I do! Therefore, it’s probably not a great strategy for me to copy his investing moves outright. Even if I wanted to, his trades are only made public at the end of each quarter. 

Instead of copying his every move, I’d be better off adopting elements of his investing style. In particular, the way he identifies “wonderful” businesses and his long-term outlook. By incorporating these into my own budget and risk tolerance, I believe that I can build wealth over many years.

Simplicity and predictability

For decades, Buffett has searched for businesses with competitive and long-lasting advantages. Ideally they have an economic ‘moat’ to protect them from the invasion of new companies looking to tap into their markets.

He identifies businesses in industries that he understands and can predict with relative certainty. These companies usually have produced a similar product or service for many years with consistent growth. For example, insurance, railways and energy are staples of today’s economy. That’s unlikely to change any time soon and that’s partly why these sectors are dominant in his portfolio.

Notably, these are considered to be cyclical sectors. While energy has particularly outperformed the market this year, it tends to underperform during periods of economic contraction. Therefore, diversification is important for me to reduce portfolio risk.

Being patient

Importantly, Buffett buys businesses, not simply stocks. When he invests, he sees himself as a business owner. Whether owning a company outright or a fraction via shares, this mindset is important for all investors. With this mentality, it’s easier to think long term and be patient rather than simply trading stocks and following their prices. It also helps to put periods of volatility and stock market crashes into perspective. 

As an investor in the stock market, I’m optimistic in its potential for long-term returns. There’s good reason to be optimistic too. The US stock market, for instance, has never lost value over a period of 20 years or more. It’s not a get-rich-quick scheme, but instead it has historically rewarded patient investors. Buffett’s career encapsulates this. In fact, over 80% of his $105bn net worth was accumulated after he reached the US full retirement age of 66.

Historic patterns aren’t guaranteed to continue in the future, of course. But they do suggest that the longer my horizon, the less risky my investments should be. I’m hoping 2023 is a better year for global stocks than 2022 has been so far. Whatever happens, I’ll be looking to Warren Buffett’s core principles to guide me through it.

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