Billionaire investor Warren Buffett has spent a lifetime ‘eating his own cooking’ when it came to investment advice. Over the years, he’s been as keen to teach as he has been to invest. And it’s clear from his portfolio and performance that he does what he says with his investment strategy.
I was once 30 with no meaningful savings. But if I could go back in time and talk to my younger (and poorer) self, I’d whisper the words ‘Warren Buffett’ in that young man’s ear. And that’s because using five of his tricks as a foundation for investing could potentially have delivered meaningful returns between the age of 30 and retirement.
Buffett’s been consistent in his advice for many years. And around 24 years ago, he delivered a fascinating lecture to some students at The University of Florida. He gave them lots of advice and he still appears to use it himself today. The only thing that’s changed is the vast increase in his wealth since!
Here are some of the things he said:
A long-term approach
“What we really want to do is buy businesses that we will be happy to hold forever.”
In that statement, there’s no mistaking Buffett’s intention to hold stocks for the long term. And that’s the first tip. However, he went on to say, “we can’t find a lot of them.”
Buffett researches his potential investments thoroughly and most don’t make the grade. So tip two is to be very choosy about where to invest. He told those students that investing is about using money to get more money back later. And “to do that you have to understand the business.”
He recommended they ask themselves the question, is the business going to keep producing more money all the time? And if the answer is yes, “then you don’t need to ask any more questions.”
For me, that’s tip three. Buffett focuses on the potential for businesses to increase their earnings over time.
Diversification versus concentration
However, Buffett acknowledged that not everyone will have the stamina, time and focus to invest in his style. So he offered a two-track method that could help investors. The first track is tip four, to me. Buffett believes that “extreme diversification” is the right approach for those without the time or inclination to invest. And to him, that means investing in low-cost index tracker funds.
But track two is “for those willing to put in the required effort”. And, under those circumstances, he said that wide diversification between stocks “is a terrible mistake.” He went as far as to say that “six wonderful businesses” is all that most committed investors need. And that’s tip five, for me.
However, despite investing for a long time now, I’ve yet to find my six wonderful businesses. Investing like Buffett might sound simple, but it’s not easy. My personal approach today involves following both tracks simultaneously. But I’m not a billionaire and I haven’t yet got a portfolio as small as six stocks!
Nevertheless, I do wish I’d learnt of these five Buffett tips when I was 30.