Business & Investment

Warren Buffett: How to Choose the Right Stock for Your Portfolio

Warren Buffett is someone that investors like to emulate for two reasons. First of all, his achievements speak for themselves. Buffett is one of the best investors ever, due to the incredible returns he achieved and the more impressive consistency he did.

But there is another important reason why he is so popular with retail investors. His advice Well thought out, the strategy he recommends is very simple.

One of Buffett’s favorite ways to understand his claim is to use analogies to explain the concept of investment. This simplifies the investment process and makes it easier to understand the concept.

In the past, when explaining to investors how to choose the right stock for their portfolio, there is a common baseball analogy he likes to use.

Warren Buffett: Stick to the circle of your abilities

In essence, what he says is that picture of you at bat in a baseball game. Each stock you come across and are considering investing in is like a pitch on your way.

Some of those stocks you don’t want to buy at all. These are balls, and you shouldn’t swing with them.

Next, we have high quality stock. These are strikes. Most people will think they will swing on every strike, but Warren Buffett has a smarter way to maximize your investment.

In baseball, there are only three strikes and I go out. However, with an investment, you can make as many strikes as you need before swinging the ball.

Every batter has a specific comfort zone where you want to throw the ball at the sweet spot.

Warren Buffett recommends that investors wait until the pitch is right on the sweet spot. In other words, not all high quality stocks make sense for your portfolio.

Some businesses or some that you may not understand may not fit your investment strategy. As Buffett says, it’s much better to wait for the best stock to fit your comfort zone or circle of abilities.

As such, you are much more likely to hit a home run, not just singles and doubles.

Top TSX stocks in any portfolio

One stock that every investor can understand Pizza Pizza Loyalty Corp (TSX: PZA).. The company receives royalties from all Pizza Pizza and Pizza 73 locations in Royality Pools throughout Canada.

The important thing is that loyalty is top-line loyalty. In other words, it comes from income, not income.

This is important for investors as it means that overall loyalty pool sales are the most important determinant of a company’s revenue. Since the company’s expenses are minimal, most of the royalty income from each location is ultimately paid to shareholders.

This makes it relatively easy to see trends in inventory progress and whether you can expect an increase in income. That’s why Warren Buffett is one of the first prerequisites for investing in stocks and is relatively easy to understand, which is why it is a stock that every investor can consider.

Currently despite Pizza pizza Much more resilient than its pandemic peers, the company is still recovering. And as that happens, the company can expect to increase dividends again.

Today, the dividend is around 6.9%. So adding to your portfolio may not be a bad stock, especially if you want to increase your income.

Conclusion

Pizza Pizza isn’t for everyone, especially if you have a growth-focused strategy over income.

However, to maximize investment success, Warren Buffett recommends buying stocks that are easy to understand.


Daniel Da Costa, a contributor to Fool, owns a stake in PIZZA PIZZA ROYALTY CORP. Motley Fool owns a stake in PIZZA PIZZA ROYALTY CORP.

Warren Buffett: How to Choose the Right Stock for Your Portfolio

https://www.fool.ca/2021/01/24/warren-buffett-how-to-pick-the-right-stocks-for-your-portfolio/ Warren Buffett: How to Choose the Right Stock for Your Portfolio

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