With the end of the year in sight, I am already thinking about what financial objectives I want to achieve in 2024 and how I might try to do that. Whatever specific choices I make, I will be using billionaire investor Warren Buffett’s approach next year as I aim to build wealth over the long term.
Investing the Buffett way
What does such an approach involve? Some people buy penny shares without really understanding their businesses. Others put money into highly speculative shares they think just might hit the big time. Other investors put a little into a very large number of individual shares, hoping at least some of them come good.
That is not how Buffett invests. He does diversify, but tends to concentrate a lot of his investment into five to 10 ideas he thinks are compelling.
Buffett only invests in businesses he understands. Indeed, he typically spends many, many hours reading hundreds of pages of company reports, accounts and financial analysis to help him decide what investments to make.
He also does not buy shares just because of their price. That does not mean Buffet has never bought a penny stock. But the point is that he does not buy a share just because of its price. Instead, he looks at value, namely what is he paying and how it compares to the value he thinks he is getting in return.
Ordinary principles, extraordinary returns
None of the above may sound revolutionary. Yet Buffett is unusual among investors because he has been able to accumulate huge wealth in the stock market over the course of decades.
Indeed, his company Berkshire Hathaway has seen its per-share market value compound at an average of 19.8% annually since 1965. Over that sort of timeframe, a near-20% compound annual gain is exceptional.
Better than the best?
But with Berkshire now worth well over half a trillion pounds, Buffett is deploying huge amounts of capital. That can make it harder for him to invest in some of the opportunities he is used to when he had less money at his disposal.
Buffett has repeatedly said he thinks he could achieve higher returns if he was operating with relatively small sums compared to what he now invests, as was the case at the start of his investing career. Indeed, in 1965, the per-share market value of Berkshire soared 49.5%.
Like many private investors, I am only able to put small amounts of money to work in the stock market. But while that gives me a potential advantage over Buffett, I can still use his simple approach of aiming to buy stakes in great companies when they trade at attractive share prices.
Indeed, that is exactly what I plan to do in 2024!
