The billionaire investor Warren Buffett started buying shares using his own money. Admittedly he was still a schoolboy at the time. But I think it goes to show that, even without savings, it is possible to build wealth the Buffett way by investing in the stock market.
Here is how I would aim to go about that.
Put away money to invest
Buffett got his start by saving up money from a paper round. I think there is a good lesson in that for all of us, regardless of our personal financial circumstances.
By saving up available cash and keeping a lid on costs, even with no savings in the beginning, it should be possible to build a pot of money to invest.
To do that, I would start drip-feeding spare money regularly into a share-dealing account or Stocks and Shares ISA.
Take a long-term approach
Hoping to get rich quick with no savings seems unrealistic to me.
But I think that consistent saving and investment with a long-term approach can help to build wealth. Buffett is now in his tenth decade and has been investing for most of his life. That sort of timespan helps, but the principle of long-term investing can still be powerful on a shorter timeframe.
By finding a company with good attributes for long-term value creation that is selling at an attractive price, time can work to one’s advantage.
Warren Buffett’s investment in Coca-Cola is an example.
Buffett spent seven years up to 1994 investing in the drinks manufacturer, at a cost of $1.3bn. His company now earns more than half that much in Coke dividends every year. Meanwhile, the value of the holding has also increased significantly.
When I think about building wealth, I do not consider jumping in and out of shares because I expect a sudden price jump. As Buffett says about his business partner and himself, “we are not stock-pickers; we are business-pickers”.
Instead, I ask myself whether I expect a company to be doing even better one or two decades from today than it is now – and whether its current price accurately reflects that potential.
Buy into a few great businesses
Sometimes people associate getting rich with being constantly busy.
Warren Buffett spends most of his working day alone, reading and researching.
He buys few shares and takes his time before doing so, often following a company for years before making a move.
That means that, instead of owning small stakes in a wide range of companies, he buys larger stakes in a small group of businesses he sees as very high quality. Over the long term, there is a big difference in returns when buying brilliant, not merely good, businesses.
I aim to use the same approach as Buffett when it comes to finding and investing in businesses with outstanding long-term characteristics.
