Warren Buffett, the chair and CEO of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is often regarded as the greatest investor of all time.

Though he’s pushing 90, Buffett has shown no signs of slowing down or of stepping back from the game of investing – which he’s been at since he was a child.

As such, I think Warren Buffett is someone we should all look up to and strive to learn from. It’s not just anybody who can build a ~US$476 billion company over a lifetime, after all.

Buffett has dished out a smorgasbord of folksy anecdotes and investing advice over his long career. But for me, one of his quotes stands above all else and it goes something like this: “The first rule of investing is don’t lose money and the second rule of investing is don’t forget the first rule – and that’s all the rules there are.”

Sounds absurdly simple, doesn’t it? You might even be forgiven for dismissing this ‘rule’ as plain old common sense.

But within it lies the true secret to never losing money on the share market, one of the biggest bugbears that holds most people back from investing in the first place.

Everyone knows the share market is a volatile place to have your money. Yes, most of the time it does go up. But it’s those periods where the market crashes and investors’ portfolios lose 10%, 20% or 30% of their value in short periods of time that really scare most people. Fair enough too.

But when Warren Buffett made this remark back in 1985, he also made a follow up remark which is often left out of this quote. He also said, “If you buy things for far below what they’re worth and you buy a group of them, you basically don’t lose money”.

And that’s the real secret to unlocking the wisdom of Buffett’s paramount rule.

Again, it sounds so simple – buying things below what they’re worth…

But this is where things get tricky (and lucrative). It’s the function of the stock market to put a value on individual companies. Most of the time, the market gets it right. But not always. It’s finding these discrepancies that really made Buffett wealthy and it’s how you can follow in his footsteps.

Invest in the ASX 200 like Warren Buffett

Consider the recent market crash we’ve just gone through. Back on 23 March, the market placed a value of $53.44 per share on Commonwealth Bank of Australia (ASX: CBA). Yesterday, the market was valuing CommBank’s shares at $72.20.

Now CommBank’s business hasn’t really changed since then. But its market value has. Anyone who exploited this detachment would be sitting on a healthy 35% gain today by following in Buffett’s footsteps and buying something below what it’s really worth.

Betting against the crowd is never fun or easy. But it’s how you can really get some healthy outperformance in your portfolio.

More reading

• Afterpay share price overbought says analyst
• Why the CBA share price is lagging its big four cohorts
• 3 top ASX shares for growth, income, and value investors to buy today
• Is the CBA share price a buy right now?
• The ASX bank dividend recovery may be better than what the market thinks

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How to be like Warren Buffett and not lose money investing in ASX 200 shares appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) has recovered from a sizeable decline at the open and is pushing higher. At the time of writing the benchmark index is up 0.35% to 6,166.5 points.

Four shares that have failed to follow the market higher today are listed below. Here’s why they are dropping lower:

The Flight Centre Travel Group Ltd (ASX: FLT) share price is down just over 2% to $17.12. This is despite there being no news out of the travel company today. However, prior to today, its shares were up over 55% since this time last month. I suspect that some investors have decided to take a bit of profit off the table today.

The Smartgroup Corporation Ltd (ASX: SIQ) share price has fallen 4.5% to $6.67. This morning the salary packaging and fleet management company released its annual general meeting presentation. This presentation included its guidance for the first half. According to the release, first half net profit is expected to be $32 million. This will be a decline of 21% from its profit of $40.5 million in the prior corresponding period.

The Woodside Petroleum Limited (ASX: WPL) share price is down 2% to $24.16. This decline appears to have been driven by a pullback in oil prices today. According to CNBC, the WTI crude oil price is down 1.5% to US$38.38 a barrel. This could have been driven by a warning by Goldman Sachs that a 20% oil price correction might already be underway.

The Worley Ltd (ASX: WOR) share price is down almost 5% to $10.14. This follows the release of its Investor Day presentation this morning. Within the presentation management advised that it has postponed all non-essential capital expenditure. One broker that remains positive is Credit Suisse. On Tuesday it upgraded the company’s shares to an outperform rating with a $10.50 price target.

More reading

• Afterpay share price overbought says analyst
• The smartest ASX shares to invest $10,000 in right now
• These ASX shares could defy the market sell-off this morning
• Is the Woodside Petroleum share price cheap today?
• ASX 200 jumps 2.4%, unloved shares keep rising

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why Flight Centre, Smartgroup, Woodside, & Worley shares are dropping lower appeared first on Motley Fool Australia.

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One of the best investing books I think you can read is Pat Dorsey’s The Little Book That Builds Wealth.

The book is an excellent guide for identifying businesses with robust economic moats or competitive advantages. Economic moats surround many of the best-performing companies in the world. Companies like Apple (NASDAQ: AAPL) and Xero Limited (ASX: XRO). Companies that we wish we had discovered a decade ago! 

Why you should own businesses with economic moats

In his book, Dorsey explains how economic moats protect companies from the fierce attack of competitors to help them to earn above-average returns on the cash they invest:

“Just as moats around medieval castles kept the opposition at bay, economic moats protect the high returns on capital.”

If a company has less competition it can charge a higher price for its products and spend less money on marketing. Now, imagine owning a portfolio full of companies like this, earning high returns year-in, year-out. What impact could that have on your wealth?

What are intangible asset moats?

One important economic moat which can be difficult to spot is the intangible asset moat.

Intangible assets are things like brands, patents and regulatory licenses which cannot be easily matched by competitors. These can create what Dorsey calls, ‘mini monopolies’. They prevent competitors from making and selling the same products and provides the company with pricing power.

3 companies with strong intangible asset moats

Blood product company CSL Limited (ASX: CSL) is an example of a company with a strong intangible asset moat. Through research and development, as well as acquisitions, CSL holds the rights to produce and sell lifesaving medicines and immunotherapies.

These rights aren’t impenetrable. Patents can be challenged and have a finite life. However, because CSL has a diverse portfolio of products, rather than relying on a single product, the moat is far more robust.

Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) is another company supported by a moat of patents. The Fisher & Paykel Healthcare share price has surged over 300% in the last 5 years and the respiratory device manufacturer has been known to battle with rival ResMed Inc (ASX: RMD) over patent infringement.

If patents are the moat around the castle, regulatory licencing is the crocodile swimming in the waters. Regulatory licencing increases the barrier to entry for healthcare companies like CSL. It does this by requiring products to get regulatory approval for sale, but with no restriction on what price products can be sold for.

Finally, milk product company A2 Milk Company Ltd (ASX: A2M) is an example of a company with a growing brand for which customers are willing to pay a premium. Along with an impressive supply chain, the a2 milk brand is very hard for competitors to replicate.

Foolish takeaway

Although intangible assets are hard to see, they can create valuable economic moats that help us to build wealth. A great way to test if an intangible asset gives a company true protection is to ask, “does it give the company pricing power and is it sustainable?”

More reading

• Why CSL, Harvey Norman, IPH, & Saracen shares are charging higher
• 3 top ASX shares for growth, income, and value investors to buy today
• 5 things to watch on the ASX 200 on Wednesday
• How to become a millionaire before your parents with ASX shares
• Why the CSL share price continues to trail the ASX 200

Regan Pearson owns shares of A2 Milk and Xero.

You can follow him on Twitter @Regan_Invests.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. and Xero. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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