5 Warren Buffett techniques to try and build wealth from zero

Christopher Ruane shares a handful of lessons from the career of billionaire Warren Buffett that he applies to his own investing.

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Warren Buffett at a Berkshire Hathaway AGM

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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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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