The Warren Buffett Investing Strategy Explained, and Why it Works

Warren Buffett has made billions finding valuable companies to invest in for the long term. And Motley Fool investors can do the exact same right now!

| More on:
close-up photo of investor Warren Buffett

Image source: The Motley Fool

Warren Buffett: it’s a name you’ve likely heard, even if you’re absolutely brand new to investing. And there’s a reason. As of April 2022, Buffett is estimated to be worth over US$125 billion. This makes him the fifth-wealthiest person on the planet.

How does he do it?

While I’m not saying that a Motley Fool investor will walk away from this article with a path towards billions, millions could indeed be in your future if you use the Warren Buffett investing strategy and apply it to Canadian stocks.

The strategy

When it comes to investing like Warren Buffett, it comes down to one thing: value. Value stocks are those that trade incredibly low based on their worth. Instead of focusing on the complexities of the stock market, investors should instead look at companies as a whole.

To do this, Motley Fool investors should look at how a company has performed, the debt on hand, and profit margins. Furthermore, it’s important to look at the future of the company. This could include how reliant they are on commodities and, of course, how cheap they are relative to that future growth.

As you can imagine, it’s not exactly easy for Warren Buffett to find value stocks. In fact, the investing tycoon continues to have a record amount of cash on hand, just waiting for the right opportunity. But that doesn’t mean you have to wait.

Invest like Warren Buffett

While Warren Buffett needs to wait to find further opportunities, Motley Fool investors can use this strategy and look at his holdings to find their own value stocks. But I wouldn’t invest directly in the stocks he already owns, because he’s already invested in them with quite a lot of money. When Buffett invests, people follow his moves, and the value the company enjoyed disappears almost immediately.

Instead, look at the sectors he’s interested in to find value stocks. I would look at the top positions that his company, Berkshire Hathaway, has and try to find Canadian stocks like it. Right now, the top five positions include Kraft Heinz, Coca-Cola, American Express, Bank of America, and a whopping 47.6% to Apple.

A Canadian Apple

Clearly, if you’re going to try and find value stocks to invest like Warren Buffett, you’ll want something like Apple. That’s easier said than done. But long-lasting technology is certainly a strong place to go if you can find cheap stocks that have soaring future value.

The key will be to find technology stocks that have a solid history of past growth and a future full of growth as well. For that, I would consider Open Text (TSX:OTEX)(NASDAQ:OTEX) a solid option.

Open Text has come a long way since its early days as a software indexer of the Oxford English Dictionary. It is now an enterprise information management company, providing cybersecurity and organization to major companies. Some include Amazon and Alphabet, but the list keeps growing.

What Motley Fool investors should love about the stock is that it’s old. You get decades of historical growth to count on, with the company finding a strategy that remains intact to this day. As it continues to expand its offerings in this new tech-heavy world, Open Text will continue to have a place and path to growth.

Foolish takeaway

Open Text remains a strong consideration if you want to invest like Warren Buffett. Shares are up about 2,100% as of writing since coming on the market in 1998. It continues to grow through major partnerships and through acquisitions. Yet right now, it offers Motley Fool investors a deal, as it trades down 22% after reaching all-time highs.

Furthermore, since the tech stock is a solid long-term buy, investors shouldn’t be put off by a fairly valued 23.46 times earnings — especially as its risk remains so low in this environment. Plus, you get a solid 2.09% dividend yield as of writing.

Those are all points Warren Buffett would be proud of.

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.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Kraft Heinz, and OPEN TEXT CORP.

More on Tech Stocks

Man data analyze
Tech Stocks

3 Reasons Celestica Stock Is a Screaming Buy Now

These three reasons make Celestica stock a screaming buy for long-term investors.

Read more »

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

telehealth stocks
Tech Stocks

Well Health Stock: Buy, Sell, or Hold?

Another record-breaking quarter and strong demand sets the stage for continued momentum for Well Health stock.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

profit rises over time
Tech Stocks

2 Non-AI Tech Stocks to Buy in November for Better Returns

Not all AI stocks are riding the hype train, and for many investors, well-understood and predictable growth stocks might be…

Read more »

worry concern
Tech Stocks

In a Few Years, You’ll Probably Regret Not Owning BlackBerry Stock

Here’s why I believe BlackBerry could be one of the most overlooked Canadian tech stocks right now.

Read more »

A worker uses a double monitor computer screen in an office.
Tech Stocks

Is Constellation Software Stock a Buy for its 0.25% Dividend Yield?

Here's what investors may want to consider when it comes to Dollarama (TSX:DOL) and its relatively low dividend yield.

Read more »

Nurse talks with a teenager about medication
Tech Stocks

Shares of WELL Health Just Zoomed. Is It a Buy?

Given its improving financials and healthy growth prospects, WELL Health could deliver superior returns over the next three years.

Read more »