Some people believe it’s easy to get rich quickly on the stock market. The truth however, is that apart from having exceptional luck, the only real way to become a stock market millionaire is to invest consistently and well, avoiding big losers — much like Warren Buffett has done.
This is why, when the markets get frothy, I stay focused on what Buffett does and what has worked for him. That is, focusing on buying value at a fair price.
The details of his approach may have evolved over time. But this fundamental pillar of not overpaying for a stock has always been key to his investment strategy.
What’s made Warren Buffett so successful?
I don’t believe this is about ignoring growth stocks and focusing purely on value shares, which can face big challenges. Instead, it’s about not following hype. The rise in Tesla shares especially after it announced its stock split being a classic example of where investors have done this, in my opinion. I don’t believe you’ll find Buffett’s been buying the shares at the current price.
One other pillar of Buffett’s success has been his ability to adjust his investing strategy when reality changes. His investment in Apple shares, despite an earlier aversion to tech, is the best example of this. Buffett also admits when he’s wrong and cuts losers out of his life, as he did when he sold out of then-troubled Tesco in 2014. He does this alongside loyalty to his winners like Coca-Cola and American Express. He has held those for a long time and through very many ups and downs.
It’s all about investing with a long-term mindset and pursuing a strategy that allows you to build a portfolio that isn’t excessively risky. This also means avoiding putting all your eggs in one basket and ensuring you’re diversified.
The importance of diversification
I think both geographic and industry diversification is important when it comes to investing. Warren Buffett’s recent move into Japanese stocks and buying gold, may be evidence of this. Like other successful investors, like Nick Train and Terry Smith, his portfolio of shares will never be linked solely to one industry. That’s asking for trouble.
Any investor, especially those using their own hard-earned cash, should hold a range of stocks. This is to ensure they aren’t taking on too much risk.
So I’ll be avoiding any get-rich-quick schemes and I’ll certainly never view the stock market as a way to build wealth fast. Like Warren Buffett, I’ll aim to invest with a long-term mindset, run winners and cut losers. I’ll try not to overpay for shares or follow the crowd and be I’ll look to be flexible enough to seize opportunities when they come along. None of this is easy. But if you can get it right often enough I think investing in shares can massively enhance your wealth.