A new year is a fresh opportunity. Whether beginning 2023 flush with cash or with not a single penny in the bank, I think it is possible to look forward and think about how one can try to improve one’s finances in the coming year and beyond. To do that, I draw inspiration from billionaire investor Warren Buffett.
Here are three Buffett lessons to help me build my own wealth, even from a standing start.
Capital and capital allocation
Buffett sees his biggest skill as capital allocation – putting money to work in a productive way.
There are two key things people need to do if they want to build wealth. First, they need some capital. Second, they need to allocate that capital in a way that can increase it and not decrease it.
If I had no savings, therefore, my priority as 2023 begins would be to start putting aside money on a regular basis. I would do that in a way that matched my own financial circumstances. So the amount I save may well be different to what people around me can manage. That is fine.
But no matter how much capital I ended up managing to save in 2023 — £500, £1,000, £10,000 or even £50,000 – that is only one part of the wealth-building process I described above. The second step is allocating it. The good news is that, no matter how much capital I have that I can invest, allocating it in the right way could help me grow it.
So, like Buffett, I would learn about how to do this as effectively as possible. Figuring out how to try and spot a great investment opportunity among other ones that are merely good could help me build wealth faster.
Warren Buffett sticks to what he knows
The most exciting thing about the investing career of Warren Buffett is its phenomenal results.
When it comes to the sorts of businesses he buys, Buffett can be characterised as boring. He sticks to industries he knows. He buys shares in well-known companies like Coca-Cola and Apple rather than investing in trendy start-ups. He looks for solid evidence of profitability rather than the potential for supersized profits in future.
I think that makes sense for me as an investor too. If I focus narrowly on industries and companies I understand, I reckon I am better able to spot the sort of great capital allocation opportunity that could help me make strong investment returns.
Do less, not more
With nothing in the bank, it can be tempting to try and build wealth by rushing. But more haste can lead to less wealth!
Warren Buffett does the opposite. He is a patient investor, sometimes following a company for years or even decades before buying its shares. He prefers to invest in a small number of opportunities in which he has very high confidence, rather than a larger number of investment ideas where his confidence level is lower.
Trying to do the same, I would likely still make some mistakes. That is why, like Buffett, I always keep my portfolio diversified. But by doing less while focusing relentlessly on finding great investment opportunities, I think I could build my wealth. That is my action plan for 2023!
