It has been a long, long time since investor Warren Buffett was spending just a few hundred dollars at a time on share purchases. For a lot of us though, a few hundred pounds may be all we have to spare at any given moment to invest in shares.
I think that could still be a potentially lucrative move. In fact, Buffett’s investing principles might help me try and hit the target of doubling my money. Here is how.
Forgetting the short term
Can I double my money owning shares in just a few weeks? It is theoretically possible, but highly unlikely. I have never managed to do that and I think that is probably the case for most investors.
Buffett says that if you are not willing to own a share for 10 years, you should not even consider holding it for 10 minutes. Dramatic returns in a short timeframe are the stuff of speculation more than investment.
The Buffett approach is about buying a stake in a great business that sells for an attractive price and then holding it for the long term. If the business truly is great, hopefully the shares might double, or better – but it could take time. Buffett started building his stake in Apple in 2016, for example, and it is now worth far more than twice what it cost.
Spreading my investments
But what if a company I think is great turns out to be a disappointing investment? For example, maybe customer needs change or some unexpected event turns a previously profitable business model on its head. If that happens and the shares fall, I could lose some or even all of my money. If I had invested the full £500 in one company, I would have none of it left.
That is why, just like Buffett, I would diversify my investments across a range of companies. That way, even if one of them disappoints, I might still be able to hit my goal of turning £500 into £1,000.
Buffett does not rush
A lot of people think that if they want to try and get wealthier, they ought to start buying shares as soon as possible.
However, I see that as a mistake. The quality of a company matters – but so does the price I pay for its shares. Buying shares of a great company when they are overpriced could turn out to be a bad investment, even if the business does well.
That is why Buffett does not rush. Indeed, sometimes he spends years waiting for the right moment to invest in a particular company. Right now, for example, he is building a large stake in Occidental. But he was already buying shares in the company three years ago and likely had followed its fortunes for many years before that.
Choosing a good moment to invest can dramatically improve long-term returns compared to overpaying for a share. That helps explain Buffett’s patience – and I think I can apply it to my own investment decisions.
The post Here’s how I’d try and turn £500 into £1,000 using the Warren Buffett method appeared first on The Motley Fool UK.
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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.