Warren Buffett’s Boring Stock Picks – and Why They Win
Billionaire investor Warren Buffett outperformed the S&P 500 for decades as CEO of Berkshire Hathaway. His strategy? Avoid flashy stocks, and check the basics for the non-essentials.
While his stock picks may seem boring to investors chasing growth, often boring investment strategies create long-term growth. Here are three investing principles that Buffett adheres to, and how you can borrow to grow your wealth.
1. Look for sewer companies
The moat is a deep moat that surrounds the castle making it difficult for troops to enter, and the drawbridge is the only way in or out of the castle. Buffett took this concept and applied it to his stock analysis by looking for companies with undeniable competitive advantages. A deep groove also protects a company from competitors and helps it gain market share.
Apple is the largest company in Berkshire Hathaway, and the technology company has created a channel with innovative products and its appeal as a luxury product. Its brand reputation helps it stand out from other companies that sell smartphones, computers and software.
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2. Get a forecasted cash flow
Buffett is not the type of investor who should consider speculative companies with high revenue growth and high losses. You want to invest in companies that are already profitable and generating predictable cash flow. This cash flow funds dividends and stock buybacks, making stocks more attractive.
Investors who want to invest like Buffett should monitor the company’s cash flow over time and see if it increases. An increase in cash flow indicates that the company has more money to reinvest in growth opportunities. It also gives the company the ability to increase its dividends at a higher rate than its competitors.
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3. Set aside money
One of Buffett’s main rules is to find the best stocks. While some stocks can accelerate your path to long-term financial goals, he says it’s important to invest in yourself.
Another way to invest for yourself is to learn how to educate yourself about investing so you can identify assets that best fit your financial goals, risk tolerance and time horizons. But another way to invest in yourself is to invest in your work.
Developing skills and building your network can increase your income, which is an important part of achieving financial freedom.
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