I'd listen to Warren Buffett's advice and buy wonderful ASX shares today

Here's how following Buffett's lead could help you beat the market.

| More on:
A head shot of legendary investor Warren Buffett speaking into a microphone at an event.

Image source: The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There are few investors out there that can match Warren Buffett's investment performance for Berkshire Hathaway (NYSE: BRK.B).

Since all the way back in the 1960s, the Oracle of Omaha has delivered incredible returns.

For example, his most recent letter to shareholders shows that Buffett has grown Berkshire Hathaway's book value per share by an average of 19.8% per annum since 1965.

Over the same period, the S&P 500 index has delivered an average return of 10.2% per annum including dividends.

Investors may be able to fluke their way to beating the market for a year or two, maybe even five. But to consistently beat the market for almost six decades cannot be attributed to luck. It is down to good investment decisions and a strategy that works.

In light of this, it can literally pay to follow Warren Buffett's advice when it comes to investing in ASX shares.

But how can investors attempt to replicate his success? Let's dig a little deeper.

Follow Buffett's advice with ASX shares

Thankfully for readers, Warren Buffett's approach to investing is not built on high frequency trading, technical analysis, or anything of that nature.

In fact, his investment style is easy for anyone to replicate and can be summed up in one famous quote. Buffett once quipped:

It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.

This quote can be broken down into two key pieces of advice.

The first is that it is very important to assess a company's quality when choosing investments. Buffett is known to look for wonderful companies that have sustainable competitive advantages, strong business models, and talented management teams.

The Oracle of Omaha wants to fill his portfolio with wonderful companies instead of "fair companies." The latter are likely to be companies lacking some or even all of these qualities.

The second piece of advice we can take away from this quote is Buffett's focus on a "fair price."

This arguably acknowledges that wonderful companies are seldom cheap. Every so often, you will find a wonderful ASX share that trades cheaply, but you may go grey waiting for enough of them to build out an entire investment portfolio.

Instead, investors may want to just accept a fair price for their ASX shares. After all, wonderful companies have a habit of compounding strongly over the long term. This means that a fair price today, may end up looking like an absolute bargain in 5 years.

Conversely, you may be able to pick up fair companies at cheap prices. But their lack of competitive advantages or strong business models could lead to them underperforming. In addition, they may be cheap for a reason and could be on a downward spiral. And if there's one thing we hate in investing, it's losing money.

Overall, by following Warren Buffett's approach and focusing on wonderful ASX shares at fair prices, it may be possible to outperform the share market and grow your wealth.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Person holding Australian dollar notes, symbolising dividends.
How to invest

How to build a $1,500 monthly income stream with ASX dividend shares

It isn't as hard as you think to build a monthly income stream on the share market.

Read more »

A smiling woman sits in a cafe reading a story on her phone about Rio Tinto and drinking a coffee with a laptop open in front of her.
How to invest

How to start your ASX share portfolio with just $1,000

Investing doesn't need to be hard. Here's an easy way to start.

Read more »

Happy young woman saving money in a piggy bank.
How to invest

How I'd invest $250,000 in Australian dividend stocks to never worry about money again

Here are a number of stocks that could be top options for income investors with money to put into the…

Read more »

Warren Buffett
How to invest

5 easy steps to invest like Warren Buffett with ASX shares

It isn't as hard as you might think to invest like the Oracle of Omaha.

Read more »

A man leaps from a stack of gold coins to the next, each one higher than the last.
How to invest

Charlie Munger's 3 brutal steps to building wealth

Munger's advice still hits home.

Read more »

Person holding Australian dollar notes, symbolising dividends.
How to invest

Buy 3,401 BHP shares for $5,000 of passive income

Want a big income boost? Here's how to do it with this mining giant's shares.

Read more »

A young man sits at his desk with a laptop and documents with a gas heater visible behind him as though he is considering the information in front of him. about the BHP share price
How to invest

Beginner investors: Start with these 2 ASX Vanguard ETFs

No investor can go wrong with these simple ETFs...

Read more »

Hand of a woman carrying a bag of money, representing the concept of saving money or earning dividends.
How to invest

The $1,000-a-month ASX share investing plan for beginners

This is an easy way to grow your wealth over the long term.

Read more »