What Warren Buffett’s investing style can teach superannuation investors

Superannuation naturally encourages investors to think in decades.

That makes Warren Buffett an interesting investor to learn from. His success has come from finding strong businesses, paying sensible prices, and giving them a very long time to create value.

I think several parts of that approach translate particularly well to retirement investing.

Think like an owner

Warren Buffett does not treat shares as pieces of paper to trade. He approaches them as ownership stakes in real businesses.

I think that mindset is valuable inside a self-managed superannuation fund (SMSF).

If I were buying Commonwealth Bank of Australia (ASX: CBA), for example, I would want to understand why customers choose the bank, what protects its position, and whether it can still be a stronger business many years from now.

The same thinking could apply to Cochlear Ltd (ASX: COH), Wesfarmers Ltd (ASX: WES), or any other long-term holding.

Share prices can move dramatically in the meantime. The underlying business is what ultimately interests me.

Quality deserves attention

Buffett became increasingly focused on owning excellent businesses rather than simply finding shares that looked statistically cheap.

For a superannuation portfolio, I think that is an important distinction.

A company with a strong competitive position, capable management, healthy finances, and room to reinvest can potentially keep increasing its value for years.

Paying a sensible price still matters. But I would not automatically reject a high-quality company because another share trades on a lower price-to-earnings ratio.

Over a 20 or 30-year timeframe, the ability of the business to keep progressing can become far more important than squeezing every last dollar out of the initial purchase price.

Activity is not the goal

SMSF investors can buy and sell investments whenever they like within the rules of their fund, but that does not mean they need to.

Warren Buffett is famous for holding some businesses for decades.

I think there is a lesson in that. Constantly changing investments creates more opportunities to make poor decisions, particularly when fear or excitement is driving the market.

If the reason I bought a company remains intact, I would rather let management keep building the business than sell simply because another share suddenly looks more exciting.

A long superannuation timeframe gives investors the freedom to be patient.

Most investors do not need to be Buffett

There is also a lesson in Warren Buffett’s support for low-cost index investing.

He has spent his career outperforming markets through individual stock selection, but very few investors can replicate that record.

For someone who does not want to spend years studying businesses, a broad exchange-traded fund (ETF) such as the Vanguard Australian Shares Index ETF (ASX: VAS) or Vanguard MSCI Index International Shares ETF (ASX: VGS) can provide a far simpler approach.

That still allows an investor to participate in long-term business growth without needing to identify the eventual winners personally.

Foolish takeaway

The biggest Warren Buffett lesson I would take into superannuation is that investing does not need constant action.

A long timeframe is valuable when it is paired with sensible investments and enough patience to leave them alone.

Whether that means carefully chosen ASX shares or broad index ETFs, I think keeping the strategy understandable and long term can give retirement savings a strong foundation.

The post What Warren Buffett’s investing style can teach superannuation investors appeared first on The Motley Fool Australia.

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