Lots of people reach a point in life without the sort of financial security they would like. Having a small amount of money in the bank account might not seem like a promising place from which to build long-term wealth. But by learning from the likes of billionaire investor Warren Buffett, I think it is possible to try and do that.
Making a start
The first thing to do is to get going!
Warren Buffett did not wait until he was in his mid-thirties to begin buying shares. He did that while he was still a schoolboy.
He started buying just three shares in a company. Different share-dealing accounts have their own fee structures. Buying just a small amount of shares with one may be more economical than in another.
I would aim to start building wealth by buying shares and continuing to invest, even if it was only on a small scale to start with. Whenever I had cash to spare, I would consider putting it to work in the stock market.
Buying to hold
How has Warren Buffett made his wealth?
In his time, especially earlier in his career, he did a bit of trading. But buying and selling shares in a short timeframe in the hope of sudden gain is speculating, not investing.
Mostly, Warren Buffett is a long-term investor. That means he buys into companies he thinks have a business model that can keep churning out profits for decades, like Coca-Cola and American Express. He then does… nothing!
Well, not quite nothing. Buffett does monitor his investments to see whether anything has changed his view on a business. But if he continues to believe a company has strong prospects, he sometimes holds the shares for decades on end.
Often that can involve him collecting sizeable dividends. He finished buying a stake in Coca-Cola almost three decades ago. Back then, it cost $1.3bn. It is now worth far more and last year generated $704m in dividends to boot.
Focusing on value
Simply buying into great companies is not enough to build wealth, however.
It is necessary to buy at the right price. As Buffett says, “it’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price”.
So, Buffett does not just look to buy on the cheap (although of course he would if he could). The key point is that he seeks to avoid overpaying. He is not buying just because of price alone. Instead, he tries to find value in the stock market by buying excellent businesses at an attractive price.
The shares for sale to Warren Buffett today on the stock exchange in New York or London are the same ones available to me and other investors.
By learning from Buffett, I hope to spot some great firms with attractive valuations that can help me build wealth over the long term.
