Master investor Warren Buffett is famous for having made billions through smart investment choices.
But although he grew up in a privileged family, Buffett is essentially self-made. His wealth has come from his investment career. That is why I think there are lessons I could apply from his approach to my own share buying choices.
Even if I was starting with nothing, I think beginning to invest money regularly using this framework could help me build my wealth.
Focus on your own strengths
Buffett has missed loads of great investment opportunities in his career. That does not bother him — because he only invests in things he understands. So he does not worry about a missed opportunity to invest in a business that ended up doing really well, if it was not something he would have felt comfortable assessing in the first place.
That simple lesson makes sense to me as an investor. Whatever my own circle of competence is, I think I improve my chances of building wealth by sticking to it when buying shares for my portfolio. That is because I am better able to judge things like whether it stands out in its marketplace and how sustainable the business model is.
For example, imagine I could invest in JD Wetherspoon, or a pub chain in Africa that someone told me was in a massive untapped market. Even though the potential reward from the business might sound better, do I know enough about it to make an informed investment decision? I do not – unlike Spoons.
Wait for as long as it takes
With nothing in the bank, an urgent desire to build wealth can lead people to invest money as soon as they have some.
That is not what Buffett does, though. He sits on money – sometimes for years. Not only that, he sits on billions or even tens of billions of dollars!
Why does Buffett not put this to work sooner? He reckons the long-term benefit of waiting and putting it into a great investment opportunity beats the results from putting it into the first merely good investment idea that comes his way.
It can be difficult to let good opportunities pass by while waiting for truly brilliant ones. But if an investor is serious about building wealth, I think this lesson from Buffett can help.
Looking beyond fads
One of the benefits of a long career like his is that he has seen enough short-lived fads to learn to ignore them.
The latest craze might help a business do brilliantly for a few years. But what Buffett wants is the sort of long-term moneymaking machine that looks likely to be making profits for decades, even as tastes and fashions change.
That is never guaranteed, which is why he diversifies across different businesses. But what all of them have in common is that Buffett thinks they are positioned to benefit from customer buying trends — not just for a season or a year but for decades.
