The legendary investor Warren Buffett is famous for being a billionaire, thanks to his investing prowess.
But not many know Buffett achieved that from a standing start. He did come from a modestly wealthy family, but he saved the money to buy his first shares when he was a schoolboy. And he has been putting his skill to good use in the stock market ever since.
If I wanted to build wealth from a standing start today, I would aim to do it the Buffett way.
Developing a strategy
As a schoolboy, Buffett did not yet have the investing strategy he developed in the decades that followed.
That does not mean however, that I need to flail about without an investing strategy of my own. Indeed, by learning lessons from Buffett’s own successes and failures, I think I can quickly develop an approach to the stock market that has a good chance of doing well in the long run.
For example, Buffett emphasises the importance of sticking to what one understands. Otherwise, it is not investing, merely speculating.
I think that focus could also help me zoom in on opportunities and assess whether or not they offer me the sort of potential value that could hopefully help me build wealth over the years to come.
Moving slowly but decisively
Buffett is in no rush. He takes time to get to know a company and its business model. Then he often patiently waits until its shares are trading at what he sees as an attractive valuation before making a move.
Sometimes that can mean following a firm for decades before investing, as was the case with IBM.
That gives Buffett a couple of advantages, both of which I can replicate. It allows him time to get to know a business well. It also means he can buy in when the valuation looks attractive, rather than paying top dollar by moving too fast.
But although Buffett can be very patient, once he does decide to invest in a business, he often does so in a big way.
At a much earlier stage in my investment career, I have nothing like Buffett’s resources to put to work. But I am able to adopt a similar approach of investing in a limited number of companies in a meaningful way, rather than taking a scattergun approach with small stakes in lots of different businesses.
That could help me build wealth if I invest meaningful amounts in a small number of firms rather than buying just small stakes in dozens of mediocre companies.
Invest for the long term
Decades into his investing career, it feels safe to say Buffett is a long-term investor!
Many of the so-called Sage of Omaha’s stakes, like those in Coca-Cola and American Express, have been in his portfolio for decades.
A great company is like a tree, or a skill – giving it years to develop can help unleash its true value. That is why, like Buffett, I take the long-term approach as I aim to build wealth through investing in the stock market.
