Your First $1,000 Investing Blueprint: A Simple Plan to Build Wealth Like Buffett

Investing like Warren Buffett may seem impossible. Isn't he a genius with an investing strategy that the average person can't replicate?

Buffett, the longtime CEO of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), may be a certified genius, but his investing strategy is not just for rocket scientists and quantum physicists. In fact, I would argue that anyone can invest like him.

That's what makes him so popular. All it takes is a basic understanding of a business' quality, valuation discipline, and the patience to stay in the game. Here is what you need to do in order to invest like Buffett with your first $1,000.

Buy quality companies

To invest like Buffett, you should take time to focus on analyzing a business' quality. A high-quality business is one that has a sustainable competitive advantage, allowing it to grow its earnings by gaining scale or pricing power. Buffett's largest investments -- what you might call his "forever" holdings -- all have competitive advantages that drive sustained growth in cash flow to their balance sheet.

Competitive advantages arise in numerous ways, including things like network effects and switching costs. These terms may be unknown to you as a beginner, but almost everyone interested in stocks will understand the power of brands.

Brand power allows companies to raise prices without losing customers. For example, long-term Buffett holding American Express consistently raises the annual fees on its credit cards with minimal customer pushback, due to its beloved brand.

Growing earnings and cash flow is a key factor in long-term stock price appreciation. Since high-quality companies are more likely to grow earnings and cash flow because of their competitive advantages, they are the best type of Buffett stocks for your portfolio.

Image source: Getty Images.

Have a valuation philosophy

Some investors care more about valuation than others, and that is OK. There is no one way to invest. However, if you want to invest like Buffett, you cannot ignore valuation when buying stocks.

He has been investing for over 75 years. Looking at his public track record, he rarely makes long-term investments in stocks with a starting price-to-earnings ratio (P/E) above 15, which gives him a margin of safety in case he is incorrect in his analysis.

You can look at his famous purchases of Apple, American Express, or Coca-Cola. All were stocks bought at a starting P/E ratio below 15, if not significantly lower when using enterprise value instead of market capitalization.

This is not a strict rule for Buffett to hold a stock. Even though he will rarely buy a stock with a P/E ratio higher than 15, he is very comfortable holding the same stock if the P/E soars to 20, 30, 40, or higher.

Since 1988, he has owned shares of Coca-Cola. During this holding period, the stock has traded at a P/E below 10 and close to 50. This is an important lesson in patience and his philosophy of buying a stock cheap but never selling as long as the underlying business retains its competitive advantage.

KO PE Ratio data by YCharts.

Stay in the game (the most important thing)

To invest like Buffett, you need extreme levels of patience. As an investor, patience is easy to understand but difficult to practice through different market environments, which is why it is important to proactively tell yourself that you will stay invested in stocks for the long haul.

This means decades, not years. Without time, Buffett would not be as rich as he is today, with the vast majority of his wealth made after the age of 50.

Don't believe me? Look at the magic of compound interest over varying periods. If you invest your first $1,000 at a 10% annual return, you will have $2,594 after 10 years. Nothing too special. But if you keep that $1,000 investment for 50 years, your wealth will have compounded to a value close to $120,000. Invest more than $1,000, and you can start building life-changing wealth for your family by the time you retire.

Staying invested in stocks his entire adult life is the No. 1 reason Buffett is one of the wealthiest people in the world. Do the same, and you will thank yourself decades from now.

American Express is an advertising partner of Motley Fool Money. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.