Warren Buffett‘s widely regarded as the greatest stock market investor of all time. Over the years, he’s constructed up an absolute fortune by investing in shares (his web price’s about $135bn at the moment).

All for investing just a few grand the Buffett manner? Right here’s what you might want to know.

A concentrate on high quality

Folks usually see Buffett as a ‘value’ investor. However while you analyse his holdings, it’s clear that worth’s not truly his primary focus lately.

His largest holding at the moment, for instance, is iPhone maker Apple. And that’s a comparatively costly inventory (its price-to-earnings (P/E) ratio’s at present about 35, which is effectively above the market common).

As an alternative, his focus is extra on ‘quality’. In the end, he likes to spend money on world-class companies which have:

• Extensive ‘economic moats’ that shield their income (eg sturdy manufacturers)
• Enticing long-term progress prospects
• Excessive ranges of profitability
• Stable steadiness sheets

Apple has all of those attributes. Another examples of firms he’s invested in that even have them embody Coca-Cola, Visa, and American Specific.

It’s much better to purchase an exquisite firm at a good price than a good firm at an exquisite price.

Warren Buffett

The key to inventory market success

Why does he wish to spend money on a lot of these companies? Properly, it’s easy. Buffett understands that if an organization has a excessive stage of profitability and robust progress prospects, together with a large moat and a wholesome steadiness sheet, there’s a very good likelihood it’ll find a way ‘compound’ its income over time.

And this actually is the important thing to producing sturdy long-term returns from the inventory market. In the identical manner that compound curiosity could make savers rich over time, compounded income could make firms a lot greater (and their shareholders a lot richer).

Apple’s an ideal instance. During the last 10 years, it’s risen over 800% (making Buffett and his buyers a ton of cash).

Discovering Buffett-type shares

The excellent news is that on the London Inventory Change there are numerous high-quality shares which have the attributes Buffett seems for.

One instance is property search powerhouse Rightmove (LSE: RMV). It has a very sturdy model that’s well-known throughout the UK. This offers it each a large moat and pricing energy (which ought to result in progress sooner or later).

It’s additionally very worthwhile because it’s a easy enterprise that doesn’t require numerous capital to run. Taking a look at its return on capital, it’s been essentially the most worthwhile firm within the FTSE 100 index during the last 5 years.

Moreover, it has a robust steadiness sheet with minimal debt. So it’s unlikely to be susceptible in an financial downturn or interval of excessive rates of interest.

Now there are not any ensures this inventory will do effectively in the long term, in fact. There’s at all times an opportunity a brand new competitor may come alongside and disrupt its enterprise mannequin.

With the inventory at present buying and selling effectively off its highs (at a really cheap valuation) nevertheless, I feel it has numerous enchantment at the moment.

For those who’re on the lookout for extra inventory concepts like this, you’ve come to the precise place. Right here at The Motley Idiot, we’re enormous Buffett followers.