2 tips from Warren Buffett to help me try and become an ISA millionaire
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Warren Buffett is one of the best-respected investors in the world. Buffett is 91 years-old, with a net worth of $104bn. This has been built up from successful investments over multiple decades via his company, Berkshire Hathaway. If Buffett can get to $104bn, can his pearls of wisdom help me to being an ISA millionaire?
Having the right time horizon
To try to become an ISA millionaire, I need a Stocks and Shares ISA. This allows me to invest up to £20,000 a year, free from capital gains tax. So in theory, if I invest part or all of my allocation each year, there’s potential for me to reach a portfolio value of £1m in the future. In order to help me on my way, here are some tips from Warren Buffett.
The first tip is a simple one. Buffett commented once when talking about how long he likes to hold stocks for that “our favourite holding period is forever”. This is an interesting point, particularly more so given the rise of retail trading over the past year. We’ve seen huge daily swings in stocks such as GameStop and AMC Entertainment. This can give people a really short-term view of trying to make money.
In reality, the longer I hold a stock, the lower my risk of being forced to take a loss. What if I only want to hold a stock for a few hours or a day? Then my timeframe to exit with a profit is short. Yet if I’m happy to hold the stock for years to come, I’d hope at some point along the way to be in profit.
Holding stocks for the long term can also help me to think more rationally. For a start, it makes me do my research and only invest in companies I really believe have a long-term future. Also, as we saw with the stock market crash last March, big swings can happen. Yet by having a view for years to come, staying invested would have meant that most shares bounced back over the course of the year.
Paying attention to Buffett regarding risk
Another quote from Warren Buffett is that “risk comes from not knowing what you’re doing”. For my ISA, the risk comes from the stocks that I buy. Given that it’ll likely take many years of investing before I’ll have a shot at reaching millionaire status, I need to apply this concept for a long time.
For example, I need to avoid investing in companies if I don’t fully understand what they do. I also need to avoid being sucked in to buying companies simply because other people are buying. In both of these cases, not being fully aware of what I’m getting into could provide me with unnecessary and unwanted losses.
Overall, I respect the advice that Warren Buffett has provided over the years. I think it’s far easier to take his word and invest accordingly in my ISA, rather than have to make errors and learn the hard way.
jonathansmith1 has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares). The Motley Fool UK has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.