1 Easy Way to Invest Like Warren Buffett

Thanks to his incredible track record as Berkshire-HathawayWarren Buffett is a legend in the investment world. Many consider him to be one of the greatest investors of all time. For this reason, average investors always try to imitate his strategy in the hope of achieving high returns.

If you want to start investing more like the Oracle of Omaha, I think you should start tackling something obvious right away that can reap huge rewards.

Identify this feature before anything else

Private investors and certainly many professional investors can copy Buffett by focusing only on owning companies that have a Economic divide. This is a single competitive advantage or a combination of them that has proven to be sustainable over a long period of time. It enables a particular company to outperform competitors and achieve higher Return on invested capital.

When a company has a moat, it has a superior competitive position in its industry. It also shows that the company in question is of high quality. There are a handful of different types of economic moats.

Apple And Disney have invaluable intangible assets that are difficult to reproduce. The iPhone maker is one of the most powerful brands in the world. The House of Mouse owns intellectual property that it monetizes in various ways.

visa And Airbnb have Network effects in their favor. The payment platform is valuable because there are so many cards in circulation and so many merchants around the world that accept cards. The alternative accommodation site has 5 million hosts and 8 million listings in 220 countries and regions, and processed 125 million bookings in the second quarter. Both Visa and Airbnb are attracting users because they already have so many, which is self-fueling.

Image source: Getty Images.

Banks like JPMorgan Chase And Bank of America own Switching costsAs customers – from individual consumers to multinational corporations – use more and more products and services over time, it becomes increasingly difficult for them to do business elsewhere.

As the third largest retailer in the world Costco has a cost advantage. It has unmatched purchasing power with its suppliers. This results in low prices for goods, with the savings being passed on to customers.

Another source of competitive advantage is efficient scaling. This is usually found in industries with high capital requirements, few competitors and minimal growth potential. Think of utilities or railroads, for example.

You may notice that some elite companies are fortunate enough to have developed multiple economic moats. In addition to the brand, Apple’s ecosystem imposes switching costs on users. In addition to network effects, Airbnb’s brand is so highly regarded in the travel industry that it has become a verb.

Investment perspective

To be clear, the existence of a moat does not automatically mean a stock is a smart buy. Some moats die, while others grow and get stronger. Figuring out which companies belong to the latter category requires more work.

There are other factors to consider before adding a company to your portfolio. Does the company have healthy margins? Does it have minimal debt? Is the management team competent? Are there meaningful growth prospects? All of these factors are important in determining whether a company is of high quality or not.

While there are many variables to consider when making your decision, I think filling your watch list with companies that have economic moats is a fantastic way to improve yourself as an investor. It’s a great starting point to build upon.