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How I’d use Warren Buffett’s tips to turn £500 a month invested in UK shares into a million

Peter Stephens
·3-min read
close-up photo of investor Warren Buffett
close-up photo of investor Warren Buffett

Warren Buffett’s investment strategy is very accessible to investors who are seeking to turn a regular investment in UK shares into a seven-figure portfolio.

His focus on buying and holding high-quality companies for the long term can be applied in almost any situation. And, with the stock market crash causing many FTSE 100 and FTSE 250 shares to trade at low prices at the present time, now could be an opportune moment to start following his tips.

Warren Buffett’s investment strategy

Warren Buffett’s investment plans are focused on unearthing bargain stocks and holding them for the long term. Clearly, deciding which stocks are considered bargains is very subjective. However, investors can use metrics such as the price-to-earnings (P/E) ratio and dividends yield to compare how one stock stacks up against its peers, as well as versus its historic levels.

Furthermore, the ‘Sage of Omaha’ considers the quality of a business relative to its price. This means that he does not necessarily choose the cheapest shares on offer. Instead, he aims to buy the best companies when they trade at a discount to their intrinsic values. In doing so, he obtains a margin of safety that creates greater scope for capital appreciation over the long run.

Warren Buffett also takes a long-term view of his investments. Therefore, the short-term movement of the stock market is of little interest to him, other than to use it to purchase bargain shares. Over time, the effects of compounding can have a significant impact on the value of an investment that delivers consistent returns.

Investing in UK shares after the stock market crash

The stock market crash provides investors with a wide range of UK shares to buy at low prices. Certainly, some FTSE 100 and FTSE 250 stocks are cheap for good reason. For example, they may have weak financial positions or lack an economic moat. However, many others currently offer wide margins of safety as a result of weak investor sentiment towards the stock market.

An investor can produce a surprisingly large portfolio in the long run through a regular investment. For example, obtaining an 8% annual return (which is in line with the stock market’s previous performance) on a £500 monthly investment could lead to a portfolio valued in excess of £1m within 35 years.

However, following Warren Buffett’s strategy and buying high-quality companies at low prices today for the long run may lead to more impressive results. This could eventually create a larger portfolio value through using market cycles to an investor’s advantage. Certainly, this plan would be unlikely to lead to high valuations in the short run. But when applied over a sustained period, I think that it could improve an investor’s chances of making a million.

The post How I’d use Warren Buffett’s tips to turn £500 a month invested in UK shares into a million appeared first on The Motley Fool UK.

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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.

Motley Fool UK 2020