Warren Buffett's Investment Strategy

Here's something that might surprise you. If you want to invest like Warren Buffett, you don't need to do anything extraordinary.

In fact, many new investors are surprised at the uncomplicated investment style of the Oracle of Omaha. Buffett invests in great businesses that trade for less than their intrinsic value and holds the investments for as long as they remain great businesses.

Of course, there's a little more to the story than that.

In this article, we'll dig into the investment style of the legendary investor. We'll provide some real-world examples of how he's implemented his investment philosophy and discuss the stocks he does (and doesn’t) invest in.

1. Look for a margin of safety.

In simple terms, a margin of safety refers to characteristics of an investment that help to protect investors from losing money.

For example, if a stock trades for $10 per share, but the company's assets are realistically worth $12 per share, that provides a margin of safety. The intrinsic value of the assets should prevent the company's stock price from falling too far. Or if it falls, the stock will become more attractive.

Buffett's goal is always to pay less than a company's intrinsic value.

2. Focus on quality.

Warren Buffett doesn't invest in junk. Early in his career, he often focused on businesses in decline but still with some value. But this changed decades ago.

You typically won't see Buffett buying struggling businesses, regardless of how cheap they become. One of the best Buffett quotes new investors can absorb is, "It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

3. Don't follow the crowd.

Here's another piece of Buffett advice that is extremely important for beginner investors, especially in the modern age of Reddit (RDDT +0.98%) message boards: Don't buy certain stocks just because everyone else is buying them or talking about them. On the other hand, do not aim to be a contrarian all the time and sell the stocks everyone else is buying.

As Buffett does, the best way to invest is to ignore the crowd entirely and focus on finding value independently.

He also says, "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."

4. Don't fear market crashes and corrections.

The obvious goal of stock investing is to buy low and sell high, but human nature can compel us to do the exact opposite.

Here's what I mean by that. When we see all our friends and colleagues making money, we feel like we should try to make money, too. We are tempted to invest our money in stocks.

And when stock markets crash, it's our nature to wait it out on the sidelines. So, it's tempting to sell "before things get any worse."

Buffett loves it when stock prices drop since it creates opportunities to buy at a discount. This is why Buffett was extremely active in the stock market in the years immediately following the 2008-09 financial crisis.

Buffett takes advantage of discounts on his favorite stocks. As he says, "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."

5. Approach your investments with a long-term mindset.

One of the most important Warren Buffett quotes on investing that you can take in is, "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

He doesn't choose stocks just because he thinks their prices will rise this week, this month, or even this year. Buffett buys stocks because he wants to own those businesses for the long term. To be clear, in practice, Buffett sells stocks frequently, but he approaches most of his investments with the mindset of holding them for the long term.

It's also worth noting that if you can't adopt a "forever" mentality with your stocks, Buffett argues that one of the best investments most people can make is a set-it-and-forget-it investment, such as an S&P 500 index fund.

This may not sound too spectacular until you realize that, over time, this has resulted in a 6,099,294% total gain for shareholders versus 46,061% for the S&P 500.

9. Research and reflect.

Although he doesn't have quite the stamina or energy that he once did (he is in his mid-90s, after all), Buffett regularly spent long days in his office in Omaha, Neb., throughout his career.

It often surprises investors to learn that he spent most of his time alone, reading or contemplating investment strategies. He's been quoted as saying, "I insist on a lot of time being spent, almost every day, to just sit and think."

Buffett views knowledge as something that compounds over time, and he believes that much of his success stems from accumulating as much investment knowledge as possible.

3. Coca-Cola

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