How to become rich - according to Warren Buffett

He may be wealthy and well-respected, but what does Mr Buffett’s advice really mean for the average person.

Article updated: 17 April 2019 9:00am Author: Lucinda Gregory

If one were to look for investment advice there are surely few better qualified than the legendary investor Warren Buffett, CEO of Berkshire Hathaway and one of the most respected businessmen in the world. Each year, as part of the Berkshire Hathaway annual report, he imparts some of the priceless wisdom which has helped him accumulate his $82.5 billion net worth (as at March 2019).

I tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
Warren Buffett

But what does this mean?

In layman’s terms, he is saying that when others are greedy one should be careful to prevent overpaying for an asset as prices boil over. Equally, when others are fearful, selling opportunities may arise, allowing investors to take advantage of low stock valuations.

This is all well and good in theory but does this ring true in real life? We all know the saying ‘don’t follow the crowd, stay true to yourself’ – yet it takes a strong person to go against the herd. Fear is ingrained in our psyche and can hold great influence over our investment decisions, causing us to stop thinking for ourselves hence following the crowd.

A little fear can be healthy ensuring we evaluate our decisions, but it is important not to panic in times of political uncertainty and market volatility. Volatility can be a friend of the unemotional, patient investor offering the opportunity to buy good businesses at bargain prices.

Opportunities in Brexit

The ongoing uncertainty around Brexit can certainly make investing in the UK feel rather uncomfortable at the moment, however now could be the time to be brave. The UK as an asset class is currently very much unloved with almost £19 billion taken out of UK equity funds since the EU referendum in 2016. However, with much of the Brexit uncertainty already priced into the market, UK assets appear to be reasonable value and offer good investment opportunities.

The UK is full of world class companies that should be able to prosper in the future regardless of the current economic climate. It is also worth noting the FTSE All Share is currently yielding 4.4%, significantly higher than its 30 year average of 3.5%, providing an attractive income stream.

We have some suggestions of UK funds and equities long term investors may want to consider:

Artemis Income

This fund focusses on companies that have a competitive advantage, barriers to entry and can create value sustainably. Delivering an above average risk-adjusted return, compared to its peers, it would be suitable for investors seeking core exposure to UK equities. The fund also provides an attractive income stream with a historic yield of 4.31%.

Aviva

The life and insurance group’s restructuring and turnaround strategy has so far led to improving results. It's digital platform has made good contributions to growth in general insurance premiums and has improved customer convenience. With an attractive dividend yield of 7% these shares should be attractive for income seekers willing to accept a medium level of risk.

Liontrust Special Situations

Managed by highly regarded and experienced ‘FE Alpha’ fund managers Anthony Cross and Julian Fosh the fund has a concentrated, multi-cap strategy. The investment process looks for companies with criteria such as intellectual property, strong distribution channels and recurring business. The managers have comfortably outperformed the benchmark over three and five years with significantly less risk than the peer group.

If you're looking to invest in any of these holdings and you're not currently a customer of The Share Centre, sign up today.


All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Lucinda Gregory portrait photo
Lucinda Gregory

Investment Research & Guidance Manager

Lucinda has significant experience working in the fund management industry having previously worked at J.P. Morgan. She currently manages our team of analysts who are leading the company’s sell-side proposition and are responsible for our range of preferred lists.

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