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Want to make £1m? I’d listen to Warren Buffett and buy cheap UK shares

Rupert Hargreaves
·3-min read
Hand flip wooden cube with word wealth to health.
Hand flip wooden cube with word wealth to health.

Many investors dream of being able to make £1m in the stock market. Unfortunately, for most, this vision remains nothing more than a distant goal. But it doesn’t have to be. A wide selection of individuals worldwide has made a seven-figure fortune (or more) buying stocks and shares. The most famous of these is Warren Buffett.

A Warren Buffett mentality

Today, this billionaire businessman is considered to be one of the best investors of all time. However, he wasn’t born with this reputation. Even great investors have to start somewhere. For Buffett, that was as an intern with one of his favourite fund managers.

When his employer decided to shut up shop, the young investor set out on his own. He raised $100,000 from friends and family and started investing.

close-up photo of investor Warren Buffett
close-up photo of investor Warren Buffett

Buffett’s strategy was simple. He sought out dirt-cheap stocks and bought them in large quantities. By using this approach, he was able to accrue a $1m a fortune by the age of 30.

Any investor can follow this path. Buffett is a highly intelligent individual, but he’s always liked to keep things simple. In the early days, he followed a simple pattern of buying stocks trading at a discount to their assets’ value, or a low P/E ratio.

Over the past few decades, he’s refined and developed approach. However, Buffett’s desire to buy stocks cheaply hasn’t changed.

Cheap UK shares

Now could be the perfect time to replicate Warren Buffett’s approach with UK shares. The combination of the coronavirus pandemic and Brexit scared international investors away from domestic equities in 2020. As a result, I think some fantastic bargains emerged.

Many of these firms are unlikely to be impacted by Brexit issues or the pandemic. Indeed, many have reported sales growth over the past 12 months. British American Tobacco is a good example. The stock is trading at a mid-single-digit P/E and offers a 7%+ dividend yield. The company is expecting to report a modest increase in sales and profits for 2020.

Another example is GlaxoSmithKline. This firm did see a small impact on operations from the pandemic. However, its core business of supplying vaccines and treatments for diseases such as HIV is unlikely to see a prolonged downturn in my view.

Then there are the banks such as Lloyds. Shares in this lender plunged in 2020, and they haven’t recovered. Nevertheless, the group’s underlying business is, in some ways, stronger today than it was at the beginning of 2020. Its balance sheet is stuffed with cash, and cost-cutting efforts have improved profit margins.

The bottom line

Buffett built a huge fortune buying stocks when no one else wanted them. It may be easy to replicate this strategy right now by acquiring a basket of cheap UK shares like those listed above.

The post Want to make £1m? I’d listen to Warren Buffett and buy cheap UK shares appeared first on The Motley Fool UK.

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Rupert Hargreaves owns shares in British American Tobacco. The Motley Fool UK has recommended GlaxoSmithKline and Lloyds Banking Group. 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 2021