Billionaire investor Warren Buffett may not seem to have much in common with those of us who have far more modest means. But Buffett built his fortune himself, starting with a purchase of just three shares when he was still a schoolboy.
Can I use some of the lessons from his investing success to boost my own chances of getting rich? I think I can – here are three of them.
1. Start as soon as possible
While most of us do not begin investing as young as Buffett did, his early start is a lesson in itself. One of the secrets to his incredible success buying and holding shares has been his willingness to invest in businesses like Coca-Cola and American Express, then wait for decades as long-term business strength pushes up the valuation.
Indeed, Buffett’s partner Charlie Munger makes this clear. He said: “The big money is not in the buying and selling, but in the waiting.”
That is why the time at which we start investing matters. If you are 45 and want to invest to have a certain amount of money by the time you reach 65, you only have 20 years to do so. That may sound like a long time, but a single bad recession could easily mean that for five or 10 years, the stock market basically moves sideways. Starting at 25 gives you twice as long to try and hit your target.
In less of a hurry to get rich, I think an investor can more easily avoid the mistakes people make when they are in a rush. Investing does not require savings to start — but the sooner we start, the longer a timeframe we have available.
2. Wait for great
How many investment opportunities has Buffett considered in his career? My guess is that it is not in the thousands but the tens of thousands.
Yet he has let most of them pass him by. That reflects a key element of the Buffett approach to investing: wait for great.
There are quite a few good businesses out there – but there are fewer that are truly exceptional. Buffett’s success has been built on putting money into businesses that have something exceptional about them. That could be the iconic brand of Apple, or the unique track network of the train company owned by Buffett’s firm Berkshire Hathaway.
Whatever it is, as an investor Buffett tries to find companies that have a truly great business model that sets them apart from competitors, not merely a good one.
3. Warren Buffett sticks to what he knows
Buffett is clearly very intelligent – but he also knows his own limits. He frequently emphasises that as an investor he always tries to stay inside his circle of competence.
In other words, he only invests in businesses he understands and feels he can assess. That is because successful long-term investment is about spotting that a business is selling for less than its intrinsic value. To do that, investors need to be able to spot how a firm can create value, both now and in the future.