Image source: The Motley Fool
After decades in the stock market, billionaire Warren Buffett continues to show how a smart but simple way of investing can help people build wealth.
This year, Buffett was far from idle. Another notable step was to reduce the size of his company’s share an apple (NASDAQ: AAPL).
Here are a few Warren Buffett moves I expect to make in 2025 when it comes to managing my portfolio.
Blatant ignorance
Sometimes, a good idea hides in plain sight.
Buffett made tens of billions of pounds thanks to his Apple stake. But ten years ago he did not own a single share in a technology company, even though it was already well established and successful.
Just because a company is well known and many people already think it’s a good investment idea doesn’t mean it’s too late to get on board.
Focus on the business model
Buffett likes to be treated well but when he invests he doesn’t depend on it. As a long-term investor, you realize that managers change over time – and not always for the better.
Buffett’s main focus when investing is how strong the company’s business model is. For example, how large a market can it target and what competitive advantage or ‘moat’ can help differentiate it from competitors in doing so?
Again, Apple is a good example. The demand for phones and technology products is huge and Apple has built competitive advantages from a large installed user base to proprietary technology.
Using money to earn more money
Apple pays dividends to shareholders like Warren Buffett, like many of his other investments.
In fact, his company earns billions of pounds a year in dividends. Rather than using those funds to pay dividends to its shareholders, it reinvests them. This is known as integration.
Buffett compares the process to pushing a snowball downhill. As it moves, it picks up more snow which in turn picks up more snow. Over time, that can lead to significant growth.
Sticking to what you know
Buffett is the first to admit that he has expertise in some industries, such as insurance, but not others.
By his adherence”skill circle”, he aims to improve his chances of success in the stock market. I will do the same in 2025.
Risk management
Buffett says the first rule of investing is never to lose money and the second rule is don’t forget the first.
Easier said than done, of course, but it makes an important point about risks and rewards. It’s easy to focus on the potential rewards, like Buffett’s huge profit from the rise in Apple’s share price. But it’s also important to be aware of the risks.
Apple’s success means it is about to dominate Warren Buffett’s portfolio. Cutting from his pole has improved his versatility. That helps reduce the potential impact of risks such as low-cost phone companies eating away at Apple’s market share.
Diversification is a simple but important risk management tool – and one that I plan to use in 2025 and beyond.
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