Warren Buffett needs no introduction to readers.
His exceptional track record of consistently beating the market over several decades at Berkshire Hathaway (NYSE: BRK.B) has made him a legend in the investment world.
Wouldn’t it be nice if you could emulate his success with ASX shares and outperform the S&P/ASX 200 Index (ASX: XJO)?
Well, there’s nothing to stop you from following the Oracle of Omaha’s lead.
How can you invest like Warren Buffett?
Warren Buffett’s success lies in his adherence to value investing principles and a patient, long-term perspective. He wrote in Berkshire Hathaway’s 1988 letter to shareholders:
Our favorite holding period is forever.
This philosophy highlights the importance of staying invested in quality companies with sustainable competitive advantage and letting the power of compounding work its magic over time.
Patience doesn’t just mean holding tightly to your ASX shares, it means waiting in the wings with capital when opportunities arise. When this happens, Buffett will pounce. He explains in 2022’s letter to shareholders:
One advantage of our publicly-traded segment is that – episodically – it becomes easy to buy pieces of wonderful businesses at wonderful prices. It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. “Efficient” markets exist only in textbooks. In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.
The difference between beating the market and matching it
Since 1965, Warren Buffett has generated a return of 19.8% for Berkshire Hathaway. This is exactly double the 9.9% return of Wall Street’s S&P 500 index over the same period.
It might be a little ambitious to target a return of that level, but what if we were to just beat the market by 2% per annum by following the Oracle of Omaha’s approach?
Well, you might be surprised to learn that it would have a profound impact on your wealth.
Over the last 30 years, ASX shares have generated a total return of 9.6% per annum. This would have turned a $5,000 annual investment in ASX shares like CSL Limited (ASX: CSL) and Goodman Group (ASX: GMG) into approximately $835,000.
Whereas if you bettered the market with an 11.6% per annum return, your portfolio would be valued at approximately $1.25 million. That 2% each year has generated $400,000 of additional wealth!
Foolish takeaway
Overall, beating the market by just 2% may seem modest, but the compounding effect over time can lead to a substantial difference in your portfolio’s value.
By Warren Buffett’s advice and staying patient, focusing on quality companies, and embracing a long-term investment horizon, you might just give yourself a great chance of achieving exceptional returns.
