New to investing? Here’s Warren Buffett’s strategy for starting from scratch

When I was first trying to find my way in the stock market, I stumbled across some Warren Buffett videos. And itâs probably the best thing that could have happened to me as an investor.

Listening to the billionaire investor has helped me avoid all sorts of schemes that are unlikely to produce long-term returns. But how would the âOracle of Omahaâ start investing in 2026?

Start small

At the 2024 Berkshire Hathaway annual meeting, a shareholder asked Buffett how heâd start investing with a million dollars. And the answer was interesting.Â

The CEO said heâd focus on small companies â the kind that arenât big enough to be meaningful for larger market participants. Thatâs where he thinks the best opportunities are.

Buffett cited a regional railroad that not a lot of other investors were paying attention to back in the 1970âs. It isnât operating these days, but itâs an interesting example of what to look for.

Investors setting out on this path need to be prepared to think for themselves. There isnât much analyst coverage to help you figure out small companies â but thatâs exactly the point.

According to Buffett, those who are willing to look can find opportunities to earn a 50% annual return. But that involves looking where others arenât willing to.

I donât have an obvious idea for getting that kind of result. But I think the UK â especially the smaller end of the market â is a good place for investors aiming for exceptional returns to look.

Industrial lighting

One example is FW Thorpe (LSE:TFW). The company has a market value of Â£352m, but Â£63m in net cash on its balance sheet brings this down to Â£262m.

The firmâs a supplier of industrial lighting and its products are used in places like tunnels, hospitals, and airports. And this is an important part of what makes the stock interesting.Â

Reliabilityâs key in these locations and lighting has to meet strict technical standards. Itâs not as simple as screwing in some lightbulbs and this creates a barrier of entry for competitors.

This is a key part of what makes the stock interesting from an investment perspective. And at a price-to-earnings (P/E) ratio of 13 (based on this yearâs earnings), itâs not exactly expensive.

An important part of figuring out which stocks to buy is thinking through the risks. With FW Thorpe, the companyâs size means it competes against bigger firms with scale advantages.

Importantly though, the organisation has a reputation for quality. And its structure means its able to offer its customers a level of responsiveness that larger businesses canât easily emulate.Â

Being brave

Those of us who aren’t Buffett need to be careful with investing as if we are him. But there’s nothing wrong with trying to stand out from the crowd in a measured and considered way.

For those looking to do this, I canât think of a better investor to take advice from. And that means trying to find opportunities that others might be missing.

I can’t find an analyst covering FW Thorpe, so there are no price targets or earnings estimates. But that might mean it’s the kind of unusual stock to consider that could help a new investor’s portfolio stand out.

The post New to investing? Here’s Warren Buffett’s strategy for starting from scratch appeared first on The Motley Fool UK.

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Stephen Wright has positions in Berkshire Hathaway. The Motley Fool UK has recommended FW Thorpe. 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.