The billionaire Warren Buffett probably has a far healthier bank balance than a lot of us. But, unlike his bank balance, his investing wisdom is freely available for other people to share.
Here is how I apply the Buffett approach to try and build my own wealth.
Figure out what you know
Warren Buffett emphasises how much importance he attaches to staying inside his own circle of competence. But a lot of people reckon they can make money by investing in exotic businesses they do not understand.
Whatever one’s own circle of competence happens to be, it helps to stay within it. Whether that is considering shares of Sainsbury because one shops there, or looking at investing in Games Workshop as a Warhammer player, sticking to what one understands helps when it comes to assessing it more knowledgeably.
Does that mean I may miss some amazing investments in other areas? Yes it does. But it also means I will avoid some investor traps waiting to catch those investing in an area about which they knew nothing.
Keep investing
Starting with zero savings, getting rich could take a long time. So it probably makes sense to start as soon as possible. Indeed, Warren Buffett himself was already buying shares as a schoolboy.
But no matter how early one starts, I think another element of aiming to get rich is to keep investing over time. Stock markets move up and down, and one’s financial circumstances can wax and wane over time. But Buffett has been consistently investing for decades. Indeed, some of the biggest moves he has made in his career have been when commentators said markets were tanking.
I follow the Oracle of Omaha in taking this approach to long-term investing. I seek to buy and hold shares over a long time horizon. But even when I am not actively buying shares, I try to maintain the habit of regularly saving money. That way, when shares I like become available at an attractive price, I am be able to scoop them up.
Warren Buffett and the mainstream
Another way I would seek to learn from Buffett when investing is copying his focus on the mainstream. Looking at his investments, such as Apple and Bank of America, it is interesting how many of them are large, well-known companies that have been around for decades or even centuries already.
He does not chase after small companies in unknown industries that claim to have discovered huge new sources of profits. Instead, he stays inside his circle of competence and focusses on well-known firms with business models that have already proven to be profitable. That has helped make him one of the world’s richest men. By learning from his approach, I hope I can at least get richer – and maybe even rich.