How to Invest in Stocks Like Warren Buffett Does?

Investing in stocks, such as Toronto-Dominion Bank (TSX:TD)(NYSE:TD), can put on a path to grow your wealth like Warren Buffett.

| More on:
question marks written reminders tickets

Image source: Getty Images

Investing in stocks successfully requires a long-term approach and patience. Despite all the hue and cry of making quick bucks by investing in stocks, I strongly believe that successful investors become partners in companies and remain invested over the long horizon.

The world’s most successful value investor of our times, Warren Buffett, has a similar approach to investing. He finds value in the companies whose stocks are depressed but whose underlying businesses are strong.

With that, he also sees if his target stock has a durable economic moat, meaning that the company commands a competitive advantage that’s hard to penetrate for any new player.

With this general theme, he buys and holds stocks over the long run, which is the main reason that the cash pile at his investment firm is increasing.

In the third quarter, Warren Buffett’s company was holding a cash balance that grew to a record $128.2 billion — up from $122.4 billion in the prior quarter and $23 billion a decade ago.

With that kind of cash, some of his long-term investments are also showing strong performance, with his top banking stocks staging a nice rebound in 2019. 

Warren Buffett’s sizeable stock bets on financials like Bank of America, Wells Fargo and U.S. Bancorp are breaking out this quarter.

Only Wells Fargo — up 20.9% year to date including dividends and other income — is underperforming the broad S&P 500 in 2019, according to a recent report on CNBC.

Warren Buffett stocks to buy

Bank of America and U.S. Bancorp have returned 35.7% and 32.5%, respectively, this year after big bounces starting in October. The S&P 500, including dividends and other payments, is up 25.7%.

If you want to build your portfolio that could give a lot of passive income, you can also follow his value investing style. 

You can buy Canadian stocks with a wide economic moat and undervalued due to some short-term factors. By identifying such stocks and investing in them, you can build a portfolio that has the power to give your regular returns in the shape of dividends and capital gains.

In Canada, I often advise investors to buy the nation’s top banks when their shares take a hit. Canadian banks are great income-producers for long-term investors and they have very diversified operations.

Toronto-Dominion Bank (TSX:TD)(NYSE:TD), for example, makes 30% of its income from the U.S., where it’s among the largest 10 lenders.

Apart from the banks, you can also invest in integrated energy companies like Enbridge Inc (TSX:ENB)(NYSE:ENB). The North America’s largest pipeline operator is in a good position to take advantage of North America’s strong energy economy. The company operates across North America, fuelling the economy and fulfilling consumers’ energy needs. 

Enbridge moves nearly two-thirds of Canada’s crude oil exports to the U.S., transports about 20% of the natural gas consumed in the U.S., and operates North America’s third-largest natural gas utility by consumer count.

Another reason to keep a top dividend stock like Enbridge in your portfolio is that when interest rates fall, these stocks become more attractive.

Given the increasing risks to global growth following the U.S.-China trade dispute, the Bank of Canada may soon follow the U.S. Federal Reserve’s footsteps and decide to cut rates.

Bottom line

There’s no quick way to make money in the stock market. But if you’re patient with a long-term investing horizon, then you can follow successful investors like Warren Buffett and start building your portfolio with the types of stocks we discussed earlier. This approach will help you stay focused and create some wealth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Haris Anwar owns shares of Enbridge. The Motley Fool owns shares of and recommends Enbridge. Enbridge is a recommendation of Stock Advisor Canada. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

Invest $374.50 Each Month to Create Passive Income of $288 in 2024

Investing a specific amount each month to create passive income this year is possible with monthly dividend payers.

Read more »

Happy retirement
Dividend Stocks

2 Stocks to Help Turn $100,000 Into $1 Million

If you want to reach $1 million, $100,000 can certainly get you there. Even if you invest in some low…

Read more »

warning or alert
Dividend Stocks

Income Alert: These Stocks Just Raised Their Dividends

There's no shortage of companies that raised their dividends recently. Here's a trio of options to consider buying now.

Read more »

Business success with growing, rising charts and businessman in background
Dividend Stocks

Don’t Look Now, But These 3 TSX Stocks Look Poised for a Nice Rally 

Three TSX stocks are in a downtrend amid headwinds. 2024 may be rocky for them, but they are poised for…

Read more »

protect, safe, trust
Dividend Stocks

3 Safe Dividend Stocks to Beat Inflation

These three dividend stocks are excellent buys to beat inflation, given their solid underlying businesses and high yields.

Read more »