If you're looking for successful investors to imitate, Warren Buffett should be near the top of your list. The 92-year-old has for many decades run the successful conglomerate Berkshire Hathaway (BRK.A -0.34%) (BRK.B -0.56%), he's been investing since he was 11, and he's currently worth about $99 billion.
The thing is, you don't want to copy Buffett's investing moves outright, for a few reasons. To start, he has much more funding than you. Your investing budget may not allow for a portfolio that contains 40 or more individual stocks.
Also, when Buffett invests in a company, he has expectations for its performance -- expectations that aren't publicized in detail. How it fares against those expectations informs his future decisions to buy more stock, sell, or hold his position steady. So even if you buy the stocks Buffett bought, you may not know how to manage those positions afterward. Moreover, his trades in the Berkshire Hathaway portfolio are only made public when the company files its Form 13F -- which happens about 45 days after the end of the quarter in which he made those trades. That's a long time lag in the investing world. So if you tried to mimic his moves directly, you'd be flying blind in real time.
A better approach would be to adopt elements of Buffett's style, rather than copying his every move. That way, you can invest on your own budget and tailor your risk to your situation. Here are three budget-friendly Buffett strategies you can implement today.
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1. Lean into low-cost large-cap ETFs
Buffett likes to invest in large, domestic companies with proven track records, ironclad competitive advantages, and conservative balance sheets. He handpicks his stock and equity investments, but you don't have to.
You can get a quality portfolio of large American companies by purchasing a single share of an ETF. An S&P 500 ETF will do the job. That index consists of 500 of the country's largest and most successful companies -- businesses that meet certain liquidity, capitalization, and profitability thresholds. Another option would be to pick a "quality factor ETF," which only holds stocks with solid fundamentals.
Whether you prefer a broad-based S&P 500 ETF or a more-focused quality factor fund, consider the fund's expense ratio before making your final choice. The expense ratio represents how much you're charged annually for fund expenses. Lower is better.
2. Keep investing through downturns
Buffett sees stock market downturns as buying opportunities. In his view, it's better to pay less for a stock than more.
He can also afford to hoard large amounts of cash until he concludes it's the right time to buy -- but you can't. Staying out of the market will only put you behind schedule on your long-term plan to grow your wealth.
For small retail investors, the best plan is to invest consistently, in good times and bad. Automate a monthly or biweekly investment into your ETF of choice and let it run.
When the market's strong, you can feel good about buying shares that are in demand. When the market's down, you can feel good about getting lower prices on valuable assets. You can also relax knowing you don't have to make any decisions. While your neighbors and friends are panicking about how to survive the downturn, you'll keep investing as you wait patiently for the recovery.
3. Be patient
Speaking of patience, Buffett has described the stock market as "a device which transfers money from the impatient to the patient." In other words, short-term traders in the hunt for quick profits are likely to lose, while long-term investors are likely to gain.
In investing, patience is measured in decades, not years. If you stick with your ongoing ETF investment for 20 years or more, you will see gains and earn dividends. There are guaranteed to be some downturns along the way, but in the long term, your results should be positive.
And here's a fun fact to support that conclusion. The U.S. stock market has never lost value over a period of 20 years or more. That history doesn't guarantee that such patterns will continue into the future, of course. But it's reasonable to conclude that longer investing timelines are more reliably profitable than shorter ones.
Invest in quality, now and later
To invest like Buffett on a budget, start by setting up an automatic, regularly scheduled investment into a quality, low-fee ETF. Stay with that plan for a few decades, increasing your contributions when you can, and then count your profits. Investing really can be that simple.
