Invest like Warren Buffet – here’s how to make money without losing your shirt

Warren Buffett, the legendary investor who has a net worth of US$70 billion, is now working from home. “Well, I’m drinking a little more Coca-Cola, actually. That seems to ward off everything else in life,” Buffett joked with CNBC.

He owns $1 billion of Coca-Cola stock.

We’d love to tell you what the great man who survived World War II, 9/11, bear markets in the 1970s, 1980s and 1990s, dot-com bubble, and the 2008 crash, is investing in right now. But you’ll have to wait for that.

He’s cashing in.  He has $128 billion in available funds and he is selling bonds to get more. Watch this space.

But there is some enduring advice from the sage of Idaho: “be fearful when others are greedy and be greedy only when others are fearful.”

I know. Not exactly a share tip, right?

But what he is saying is:  if there is buying frenzy, stay out of it.  If there is a selling frenzy, get interested.  When people are scared, they make mistakes.

So what should we do?

Firstly, if you’re a new investor, go to the government money site and spend an hour working out what kind of investor you are: https://moneysmart.gov.au/how-to-invest/choose-your-investments

They will also tell you how to buy – and how to sell.

The second part is important – far too many hold too long and don’t sell on a high.

Secondly, there are a few basic rules that make sense during this extraordinary time – actually just about any time –  and on just about any commodity, from shares to property.

When should I buy?

Stocks are in free fall.  But you shouldn’t be a short term investor. Stocks are around 30%+ down since February.  So pick stocks you KNOW are coming back:  Qantas, Telstra, bank, supermarkets. Hit what are known as the “blue chip” companies – they’ve been around forever, they own their market and they aren’t going anywhere soon.

Find them here: https://www.finder.com.au/blue-chip-stocks

And remember:  everyone is chasing these, so returns will be good rather than spectacular.

When to sell:

Just before the market realises a full recovery.  How will you know this is happening?

In terms of the Covid-19 economy, here’s a test:

• Global infection rates decline
• Scientists discover an antidote or vaccine
• It becomes clear a credit squeeze isn’t on the cards

What should I buy?

The billion dollar question. And the answer for the occasional investor is pretty simple: Blue chip, blue chip, blue chip.  It’s boring, but they invariably come back! And unless you really want to put the house on what your brother-in-law heard in the pub last night, it makes sense.

Supermarkets, health care, technology, home improvement.

Property has fallen 20% and new home construction is down 23%  – with more to come.  Yet (can’t think how many times we’ve said this):  people always needs homes.

Motley Fool, a site espoused by Fairfax Money and others, suggests these:

• Booking.com
• Walt Disney
• Amazon
• Netflix

They want $99 for their other tips. We decided not to pay.

Why?  Here’s what they claim about their investment history:

If you read this note on June 7, 2002… when David recommended Marvel (years before it was acquired by Disney), you’d be up 5,731% today.

Or on May 21, 2004, when David first recommended Booking Holdings (formerly Priceline Group), you’d be up 5,830% today.

Or – more recently – on July 15, 2016, when the Stock Advisor team announced their recommendation of Shopify… you’d be up 1,284%.

Now if you had invested just $1,000 in each of those stocks, you’d be sitting on $131,455 today.

Winning on investment today is about being certain – and trying to mitigate risks.

But there is one rule worth following: if it looks too good to be true, it probably is!