Warren Buffett made his billions investing in US stocks, not ASX shares.
But that doesn’t mean we can’t emulate his stellar success to get the most out of our ASX share portfolios.
At last count, Warren Buffett had amassed a personal fortune of US$115.6 billion (AU$169.8 billion), according to Forbes. That’s an even more impressive feat considering the now 92-year-old investing guru began his journey to wealth with almost nothing.
And the Oracle of Omaha has used his legendary investing acumen to deliver more than 50 years of outperformance at Berkshire Hathaway.
Since stepping into the leadership of Berkshire Hathaway back in 1965, the Oracle’s stock choices have gained an average of approximately 20% annually.
And he’s done so employing a simple approach which he says, “makes the most sense, frankly, all of the time.”
Part of the strategy embraced by Warren Buffett includes these three ridiculously simple steps that we can all use when investing in ASX shares.
Buy ‘the investment universe’
Not everyone has the time or expertise to research all of the potentially lucrative opportunities on the ASX to sort the wheat from the chaff.
That’s why Warren Buffett is a big fan of exchange-traded funds (ETFs). At least for retail investors, like you and me.
“American business is going to do fine over time, so you know the investment universe is going to do very well,” he said.
To gain broad exposure to that, he recommends investing in an S&P 500 index fund. There are a few to choose from here on the ASX, including the SPDR S&P 500 ETF Trust (ASX: SPY).
SPY is intended to mimic the performance of the S&P 500. And it’s tracking quite closely.
The S&P 500 is up 19.1% so far in 2023, while SPY has gained 19.3%.
According to Warren Buffett:
The trick is not to pick the right company, most people aren’t equipped to do that, and plenty of times, I make mistakes. The trick is essentially to buy all the big companies through the S&P 500.
What other simple investing tips does Warren Buffett offer?
Atop buying all the big name stocks that he believes will, as a whole, perform well over time, the Oracle recommends being consistent. That means saving some money every day and buying ASX shares (including ETFs) every month or two.
That can be hard to do when the stock market is in a broader downtrend. But Warren Buffett says that shouldn’t dissuade you.
“Keep buying it through thick and thin. Especially through thin,” he said.
Which ties in nicely with one of his most famous sayings, “Be greedy when others are fearful.”
So don’t let bearish financial media headlines put you off when the market is struggling. Instead, take the Oracle’s advice and, “Just keep buying it.”
Which brings us to the third ridiculously simple Warren Buffett tip — keep your costs to a minimum.
To keep brokerage fees low as a percentage of your investments, it pays to invest in somewhat larger amounts.
And when it comes to management fees for ETFs, look for lows cost options.
“If returns are going to be 7% or 8% and you are paying 1% for fees, that makes an enormous difference in how much money you’ll have by retirement,” Warren Buffett said.
SPY fits the bill here, with relatively low management costs of 0.0945%.
