Warren Buffett has a deceptively simple investment philosophy that can completely change how you think about how to invest: don't just buy stocks, buy businesses.
That means understanding how a company makes money, whether it has a durable competitive advantage, or moat, and whether its shares are trading at a sensible price.
Those principles would shape how I'd invest $10,000 today.
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Only buy businesses you understand
This rule can keep investors out of some spectacular investment manias.
Buffett didn't understand the dot-com boom, so he stayed away. He also never understood the investment case for cryptocurrencies, so Buffett didn't buy them.
That doesn't mean every technology stock or cryptocurrency is a bad investment. It's because you don't need to invest in everything.
There are thousands of businesses listed around the world. I'd rather own a handful of companies I understand than pretend I have an edge over the market.
Look for powerful economic moats
Buffett's famous "economic moat" concept is another cornerstone of my how to invest strategy.
I'm looking for businesses with something that makes it difficult for competitors to steal their customers and profits, whether that's a powerful brand, network effects, switching costs, intellectual property or sheer scale.
Apple Inc (NASDAQ: AAPL) is a good example. I understand what Apple sells, why customers want its products and the strength of its ecosystem. That's the sort of business I'd be comfortable owning for years.
But there's another crucial Buffett lesson: even a wonderful business can be a terrible investment if you pay too much. That's why valuation still matters.
Invesing $10,000 today
I'd make the Vanguard MSCI International Shares ETF (ASX: VGS) the foundation of my portfolio. I would allocate $3,500 to this ETF.
With just $10,000, I can't realistically own 50 individual international companies. Trading costs, research and portfolio management would quickly become excessive.
VGS gives me exposure to roughly 1,300 developed-market companies through a single investment. Instead of trying to predict which company will become the next superstar, I can own a slice of many of them.
If an investment compounded at 10% a year, it would roughly double every seven years. That's the sort of long-term compounding I'm targeting, although actual returns will vary.
I'd then put $2,000 into Macquarie Group Ltd (ASX: MQG) as a high-conviction investment. I'm deliberately overweighting a business I believe has a powerful moat and significant long-term earnings potential.
The question isn't whether Macquarie Group rises next month. I'd be asking whether I still want to own the business 10 or 20 years from now.
I'd put another $2,000 into Betashares Australia 200 ETF (ASX: A200). It can play a similar role to VGS by providing diversified exposure to Australian businesses without requiring me to buy dozens of individual stocks.
Finally, I'd keep $2,500 in cash. Why? Because a market correction or an exceptional business suddenly trading at an attractive valuation could create an opportunity to deploy that cash.
Think like a business owner
The biggest advantage may come from changing the timeframe.
If I'm investing for six months, I'm focused on the share price. If I'm investing for 20 years, I'm focused on the business.
"Forever" changes everything. I'm not trying to predict the next market winner. I'm trying to own great businesses, pay sensible prices and give compounding as much time as possible to work.
That's the Buffett philosophy I'd use to invest $10,000 today.
