Having nothing in the bank may not seem like a promising starting place for building wealth. But when he was a schoolboy, billionaire investor Warren Buffett started saving spare money that he then used to fund his first share purchases.
In the decades since, Buffett has proven himself a stock market master. By learning the techniques he has used, I think I can hopefully improve my own chances of building wealth in the stock market.
Buffett thinks in decades, not days
The first point to note is that Buffett does not buy shares today hoping they will soar next week and he can make a profit. He is not a speculator but a long-term investor.
That means he thinks in terms of years or decades.
But it also influences how Buffett thinks of shares. For him, they are not simply pieces of paper with a price attached. Instead, he sees them as a small stake in a business.
So the reason he owns shares in firms like Apple and Coca-Cola is not because he expects to make a quick buck by selling them.
Rather, it is because he likes the long-term commercial prospects of those companies and felt he had the opportunity to buy shares for less than he judged their long-term value to be.
Waiting for great chances
How active is Buffett in the stock market? Perhaps, surprisingly, the answer is not very!
Buffett can go years at a time without making any major purchases or sales.
That does not mean he is idle. Quite the reverse. Every day, Buffett reads hundreds of pages about businesses and the market. He is constantly trying to identify what he sees as outstanding businesses.
But the Buffett approach to building wealth involves identifying great companies with attractive share prices, then buying and holding.
Instead of taking every reasonable investment opportunity that comes along, Buffett therefore ends up making a fairly small number of what he sees as highly promising share purchases rather than a large number of mediocre ones.
That is a simple but powerful lesson for a private investor like me.
Bargains hiding in plain sight
Looking at a list of his largest shareholdings, one thing is immediately noticeable. Many are household names that have been trading for decades.
Some new investors believe that if they can just find one small company with a great future that is currently not well known, they might strike it rich.
Buffett never puts all his eggs in one basket. He sticks to large businesses he understands. Often, they have already been successfully trading for many decades.
Instead of trying to get rich in little-known corners of the stock market, Buffett simply looks for quality bargains hiding in plain sight. I can and aim to do the same!
