Warren Buffett is the world’s most famous investor and while he trades in billions, his folksy wisdom also works for those who only have a few pounds at their disposal.
If I had no savings at 30, I’d want to take investment advice from somebody who knows how to build wealth. Few can match Buffett on that score. Yet newbie investors might be surprised by his attitude to getting rich.
First, he doesn’t believe it’s something investors can do overnight. It takes years, decades. Longevity is his strong suit. The man is still investing at 93, for crying out loud, and is still beating the market hands down.
The remarkable Mr Buffett
If I was starting out, the first thing I’d do is adopt his long-term view. As Buffett once said: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
When I started investing seriously, holding a stock for 10 minutes felt like a long-term commitment. I sold my winners and losers with alacrity, and racked up a heap of trading charges along the way. Unfortunately, I didn’t make any money. Somebody who starts investing at 30 has decades to build their wealth and should think long term.
If I was in their position, I would aim to build a retirement portfolio that can last the course. It would mostly be made up of high-quality FTSE 100 blue-chips, with a strong track record of increasing profits and paying dividends.
I would also take advantage of any stock market sell-off to buy them. Which is handy, because we seem to be in the middle of one right now. Buffett sees a stock market crash as a great opportunity to top up his holdings. “Bad news is an investor’s friend”. he once said.
That may seem counterintuitive. We want to make money, don’t we, not lose it? However, when share prices fall, it also means they are cheaper. If they pay a dividend, investors will be locking into a higher yield too.
I’d buy top quality stocks
This doesn’t mean buying any old rubbish in a crash. Buffett likes to buy “quality stocks with good liquidity and solvency positions that generate plenty of cash”. He also likes to invest in businesses that have a sustainable competitive advantage, or what he calls a “moat” against competitors. They should have outstanding management teams, and develop and support them.
If a business can do all that, then a wider stock market crash is nothing to be afraid of. This is when investors can fill their boots. Buffett puts it nicely: “Opportunities come infrequently.When it rains gold, put out the bucket, not the thimble.”
It’s always a good time to buy a good company, but even better if it’s available at a discount. As Buffett also said: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold.”
I can see plenty of dark clouds around right now. This may deter some younger investors but instead they should listen to Buffett and use this opportunity to build their personal pot of gold for retirement.
