New to investing? I use the Warren Buffett method as I try to get rich

Today, Warren Buffett is one of the most successful investors in history. But at one point, even Buffett is new to investing.

As an investor I can learn a lot from his career. If I wanted to start investing for the first time, I would not try to reinvent the wheel. Instead, I will invest according to some of the principles that made Buffett so rich.

How Buffett invests

Many new investors are surprised by the images of numbers and prices constantly flashing on the bank of screens. They mistake activity for productivity.

By contrast, Buffett said it wouldn’t bother him if the stock market closed for a decade. Understanding why they feel the way they do is important insight into their investment style.

The ‘Sage of Omaha’ doesn’t see a stock as a piece of paper that sells for a certain price. Instead, they consider themselves a small stake in the business. So they don’t have a stock like that Coke and Apple because they expect the price to rise quickly, allowing them to make money. However, Buffett has enjoyed owning shares in large companies for decades.

That’s because success breeds success. Ideally, the longer a strong business model has to operate, the more profitable it will be. Instead of cashing out, Buffett likes to hold stocks for the long term. As a long-term investor, he can benefit if the company’s analysis is correct and its performance over time reflects some of its inherent strengths.

Find stocks to buy

This is the approach Buffett takes when he buys entire businesses, sometimes for billions of dollars.

I will not do that. But, like Buffett, I can buy shares in the stock market. He is an active investor in stocks. Although my resources are limited compared to Buffett’s, I can also use his principles to select the stocks I want to buy for my portfolio.

Buffett owns shares in several large businesses. But he also knows the important lessons that many new investors learn only through costly mistakes. A good business doesn’t have to be a worthwhile investment. It is also important to buy at an attractive price.

What the price will depend on several factors. Investors need to address several important financial factors. A company can be highly profitable, for example, but also have a large debt pile that threatens to eat into profitability. That’s the case VodafoneFor example.

But even debt-free and highly profitable companies can be overpriced. So Buffett looks at what excess cash he expects the company to generate in the future, then discounts for debt and the cost of tying up the money in the shares for many years. If he thinks the underlying value is still higher than the current share price, he can invest. I take a similar approach when hunting for stocks to buy for my portfolio.