Warren Buffett is one of the world's greatest investors and has built Berkshire Hathaway into one of the biggest businesses. I think Aussie investors may be able to learn some things from him on how to invest a small amount into (ASX) shares.
He's been working for billions of dollars for a long time, but there was a time when he invested smaller amounts of money. If investors aren't going to invest in exchange-traded funds (ETFs), he thinks investors can make good returns by picking stocks.
AGM advice
Every year, Berkshire Hathaway holds its annual general meeting (AGM) where Warren Buffett and Charlie Munger answer shareholder questions.
When asked at a previous AGM about how he would invest a small amount of money, Warren Buffett said:
I would use the approach that I think I'm using now of trying to search out businesses where I think they're selling at the lowest price relative to the discounted cash they would produce in the future.
But if I were using a small amount of money the universe would be huge compared to the universe of possible ideas I work with now.
…I would say if you're working with a small sum of money and you're really interested in the business and willing to do the work, you will find some things that promise very large returns to what we will be able to deliver with large sums of money.
He then talked about how he used to invest when he was working with smaller amounts of money.
I would pour through volumes of businesses and I would find one or two that I could put $10,000 or $15,000 into…they were ridiculously cheap.
I think if you're working with a small amount of money with exactly the same background that Charlie [Munger] and I have and the same ideas and the same ability we have, I think you can make very significant sums.
Buffett said he went through tens of thousands of pages of the Moody's investment book to analyse sectors and individual businesses.
What ASX shares would Warren Buffett invest in?
As far as we know, Warren Buffett isn't hunting on the ASX for opportunities. But, he did talk about doing a discounted cash flow analysis.
He has generally steered clear of businesses in the technology space, so that would rule out quite a few of the ASX's leading ASX growth shares.
Considering jewellery business Borsheims is part of the Berkshire Hathaway business, I don't think it's too much of a stretch to say that Buffett would be interested in buying shares of Lovisa Holdings Ltd (ASX: LOV), an affordable jewellery retailer aimed at younger investors.
It's going through a global store rollout program, which is growing its profit potential and scale. The company grew its net profit after tax (NPAT) by 31.9% in the FY23 first half. It has shown an ability to grow profit, re-invest for further growth and throw more cash to shareholders in the form of bigger dividends.
According to Commsec, it's valued at just 16 times FY25's estimated earnings with a potential FY25 dividend yield of 5%, not including the effect of franking credits.
