Could a single conversation with Jeff Bezos and Warren Buffett make me rich? Not that I’ve spoken with them myself. I’m not exactly pen pals with either man.
But they did speak once about investing. It was a short exchange but contained powerful advice on how the average person can ‘get rich’. Let’s look at what was said.
Jeff Bezos asked: “You’re the second richest guy in the world. Your investment thesis is so simple. Why don’t more people just copy you?”
Bezos asks a good question. Warren Buffett’s investing style is unbelievably simple. Buy good companies at a cheap price. I’ve summarised it in a sentence and yet it made Buffett a multibillionaire.
The answer
This way of investing doesn’t require lots of initial capital or lots of time. If the average person was able to match Buffett’s returns (around 20% yearly) then they could turn a £10k stake into £1m in about 25 years.
So Bezos was asking a question a lot of us would like an answer to. Why isn’t everyone doing this? Why isn’t every man and his dog studying the tactics of Warren Buffett and using it to turn small savings into millions and millions? Well, let’s see his answer.
Buffett responded succinctly: “Because nobody wants to get rich slow.”
He summed up the problem. Many investors don’t want to sit on their hands for 30 years while their investments build… slowly. They’d rather risk the many portfolio-destroying pitfalls that come with taking an active approach.
Pitfalls
The data shows how poorly typical investors do. A JPMorgan study compared the average investor’s return over a 20 period compared to the benchmark S&P 500 return of 9.5%. What did the average investor get? Just 3.6%!
Why do they underperform so much? One reason is following the herd. While this instinct might have saved us from the jaws of a predator when we saw other humans running for their lives many thousands of years ago, it’s a disaster in the stock market. This mindset causes us to buy when stocks are high and sell when they’re low.
Shaking off our ‘herd mentality’ is easier said than done, but Buffett’s approach of looking at stocks as companies can help. If I look at my investments as a business, it may prevent me from making costly mistakes like panic-selling or buying overpriced assets during a bubble when the hype is at its most intense.
One way
By buying companies like Buffett does, I could become richer with a surprisingly small amount of money – in some cases a lot less than I’d end up spending on an average house.
For example, a £20k initial stake with £200 a month on top might work. Compounded that at 10% and it turns into £761,556 over 30 years. That’s a long time to wait, but it’s certainly a way to “get rich slow”.
