Famous investor Warren Buffett has built an enormous fortune within his own lifetime, thanks to smart investment choices.
If I had no money saved up today but was willing to drip-feed some regularly into a Stocks and Shares ISA, here are five Buffett techniques I would use to try and build my wealth.
1. Think long term
Buffett’s investment timescale is long-term. He thinks in terms of years, decades, or even longer.
That has some practical benefits. For example, it means Buffett does not follow every twist or turn in the stock market. He does not waste time obsessively checking his portfolio.
But the key benefit I see is that it allows him to buy into a business he thinks still has a great road ahead (like Apple) then sit back and hopefully let success pile on business success, driving up the share price.
2. Compound to grow wealth faster
Buffett is a passive income master, having built a portfolio of shares that pays him hundreds of millions of pounds in dividends annually.
He puts that money back into more investments. That is a principle known as compounding that I also can use as a small private investor to try and grow my wealth faster.
3. Pay attention to red flags
Buffett looks at a lot of investment opportunities. But he does not end up acting on most of them.
When he sees some red flags in a company’s accounts, he does not ignore them.
Unlike some investors, Buffett does not just fixate on the possible return from any given investment. Instead, he also seriously considers the potential risks involved. No matter how attractive a deal may seem, if he sees enough red flags he walks away.
As he says, the first rule of investing is never to lose money – and the second rule is never to forget the first rule.
4. Diversify a portfolio
Buffett has had some spectacular successes. If he had invested all of his money just in them, he would have done far better.
But he did not. Why? He has also had some big failures.
As a smart investor, Buffett knows that even a brilliant company can come a cropper for reasons outside its control. So he always keeps his portfolio diversified across a range of different shares.
5. Focus on competitive advantages
Sometimes a company can do really well for a year or two because it is the flavour of the day. That can mean its shares soar – only to come crashing back to earth later.
Buffett tries to invest in companies he thinks have large, resilient target audiences. He looks for a specific competitive advantage that could help the business do well against rivals who may also want some of that market for themselves.
That could be a strong brand like Coca-Cola or a large customer base like that of Bank of America. But, without a sustainable competitive advantage, it is hard for a business to perform really well for decades.
