3 lessons I’ve learned from Warren Buffett when investing in the UK stock market

Warren Buffett is among the most successful investors of all time. His methods are simple, practical and have aided me considerably when investing in the UK stock market over the years.

A patient approach to investing in shares

One area where he has a different approach than many other investors is his focus on the long term. He does not seek to make a quick profit from any investment. Rather, he aims to provide any stocks he holds with enough time to deliver on their long-term growth potential.

Sometimes, this means that he holds companies for many years – even decades in some cases. This allows compounding to have a stronger impact on returns. It also means there are lower trading costs to pay when investing money in the UK stock market.

Warren Buffett’s economic moats

Another lesson I’ve learned from Warren Buffett is to focus on companies with wide economic moats. This essentially means they have a competitive advantage versus their sector peers. This may be in the form of lower costs, brand loyalty or a unique product, for example.

An economic moat can help companies in the UK stock market to produce higher margins and stronger profitability in a range of market conditions. For instance, sales may hold up better for a company with stronger brand loyalty than its peers. Likewise, a firm with lower costs may be more profitable than its peers in a variety of trading conditions.

Of course, identifying economic moats is not always possible due to them being open to subjectivity. However, the process of following Warren Buffett’s thinking in this regard can mean an avoidance of weaker companies when investing in the UK stock market.

Companies instead of stocks

At times, it is all too easy to think of stocks as names and numbers instead of real businesses. Warren Buffett has a different approach. He thinks of himself as being a shareholder of all of the companies he holds. This helps him to have a slightly different outlook on their performance and prospects, in terms of giving them more time to deliver on their strategic priorities.

With stock prices changing quickly at times, it can be difficult to maintain a view that shares are a portion of a real business. As a result, I spend less time monitoring how the UK stock market is performing in the short run. Instead, I have found considering the strengths and weaknesses of companies is a more productive use of my time.

Undoubtedly, Warren Buffett has made mistakes when investing in stocks. After all, no investor has a perfect track record. But his long-term approach, focus on companies and views on economic moats have helped many investors to shape their own strategies – me included.