There’s no better advice for me than to listen to people who have already achieved the things I’m aiming for. And I choose to follow the teachings of billionaire investor Warren Buffett.
And that’s for two reasons. The first is because I’m aiming for a million from stocks and shares. And he’s already made a million from businesses and the stock market. In fact, he’s made many thousands of millions from his investing activities.
A focus on business quality
The second reason for me to listen to Buffett is that he’s easy to follow. He’s free with the use of his folksy sayings. And each one is honed to make a pertinent point that’s backed by all his wisdom and experience. Yet his utterings sound so simple and obvious to me after I’ve read them. But, of course, that’s only with the benefit of hindsight. Indeed, Buffett doesn’t try to sound clever. He’s what I’d describe as ‘user friendly’.
On top of that, the master investor makes his annual letters to Berkshire Hathaway shareholders available to all for free. And I find them to be a great resource to help me with my own investing strategy.
One of his great successes was the way he turned his investment in Berkshire Hathaway around. He bought the struggling textile company in 1965. However, he found he couldn’t turn around the fortunes of the business because it operated in a declining sector.
Rather than throwing good money after bad, Buffett didn’t reinvest much money into the textile operations. Instead, he took the declining stream of cash flowing into Berkshire Hathaway from its operations and bought better businesses instead. And in that way, he developed Berkshire into a holding company.
A spectacular outcome
It was a masterstroke of an idea. And Buffett eventually closed down the old textile operations completely. But since he took over the company in the mid-1960s and changed its strategic direction, the per-share market value of the company rose by 3,641,613% up to 2021.
That is a phenomenal endorsement for Buffett’s investment strategy. And the new trajectory of Berkshire Hathaway underlined a shift in his thinking. He used to buy struggling businesses when they had a very cheap valuation. But he now advises us to buy “wonderful” businesses when they have a fair valuation rather than having an expensive one. And that appears to be the way he drove Berkshire Hathaway to such heights over the years.
But another piece of Buffett advice is that we don’t have to invest money the way we earn it. And he took the original textile business cash inflow and invested it in better opportunities.
But I’m using that advice with the stocks in my portfolio. And to that end, I’m collecting all the dividends arriving in my portfolio and investing them in the best stock opportunity I see at the time. Indeed, they don’t have to be reinvested in the stock they came from.
There’s no guarantee I’ll make a million following Buffett’s teachings. But I stand a better chance with him than without him.
