Sometimes the prospect of building wealth amid the spectre of bills and rising prices can seem far off. But investor Warren Buffett built his wealth on his own rather than inheriting a vast fortune. By following his approach, I may not become as rich as him – but I think I can build wealth. Here is how.
Focus on the long term
An empty savings account or lack of money to invest are challenges of the here and now. But Buffett does not focus too much on today’s problems when investing. Instead, he looks to the long term. Buffett has spent his career investing with an eye on what may happen in years or even decades to come.
That can feel hard to do when more immediate financial pressures make themselves known. But building wealth is a long-term project. Like Warren Buffett, I think it is helpful to think about what could improve my financial situation in future, even if it feels like there is little I can do about it straight away.
Earn while you sleep
Buffett has figured out how to earn money while he sleeps. He does that by investing in businesses that make big profits. Some of them are paid to him as dividends.
That approach to setting up passive income streams is one that anyone could take. By buying shares today and holding them for the long term, I think I can set up passive income streams. If I buy shares in great companies, hopefully I might also build my wealth over time.
Go for quality
A lot of people buy shares, though, without seeing the sorts of investment returns that Warren Buffett has enjoyed.
So, what is the secret of his success? The good news is that it is not a secret – Buffett dispenses his knowledge freely in his annual letters to Berkshire Hathaway shareholders and elsewhere. One thing Buffett does that sets him apart from many investors is adopt a relentless focus on the quality of the businesses in which he invests.
Instead of trying to time the market or benefit from sudden swings in share prices, Buffett hunts around for businesses he thinks have enduring characteristics that could keep them profitable. His investment in Coca-Cola is a good example. The company basically sells flavoured water, which is cheap to manufacture. But because of its strong brand and unique formula, there is no direct substitute. This means it is able to charge customers a premium price.
That helps the company makes profits, which it can pay out to shareholders in the form of dividends. Buffett’s investment in Coca-Cola has nothing to do with where he thinks the share price may go tomorrow, next week or next month. Instead, it reflects his hunt for quality businesses he thinks could be profitable over the course of years.
Investing like Warren Buffett
Knowing how to invest like Warren Buffett is not going to help me build wealth unless I do something with that knowledge.
I think his approach to spotting businesses to invest in works for UK shares as well as US ones. Even if I had no savings, I reckon putting aside money regularly and investing it in shares using the Buffett method could hopefully help me build wealth.
