Legendary investor Warren Buffett did not wait long to start investing. He was already buying shares as a schoolboy.
Most of us take longer than that. In fact, a lot of people plan to start buying shares but keep putting if off year after year.
Sometimes a looming loss of opportunity can provide the necessary motivation to get going, like the imminent annual deadline for Stocks and Shares ISA contributions. But some people still do not start investing, waiting until they have more funds at their disposal.
I actually think starting investing on a small scale can be beneficial.
It means being able to seize opportunities today rather than missing them, and any beginners’ mistakes can be less costly when made on a small scale.
If I had under a thousand pounds spare today, here is how I’d use Buffett’s approach to start investing.
Stick to what you know
Warren Buffett does not put all his eggs in one basket. Even the best company can run into unexpected difficulties, so he keeps his portfolio diversified.
That is a simple risk management method I would use even if I had only a few hundred pounds to start investing.
What sort of shares does Buffett buy?
Consider one he has owned for decades: Coca-Cola (NYSE: KO).
By the time Buffett started buying the shares, the business had already been listed on the US stock market for decades. Its brand was iconic and known in large parts of the world.
In other words, Buffett did not try to buy into a small company few had heard of hoping to beat the crowd.
His typical approach, as here, is to stick to what he knows. He likes sizeable companies with proven business models he understands and the potential for significant future cash generation.
Sit back and do little
Having bought the Coca-Cola stake, Buffett has hung onto it for almost 30 years. He now earns over half what he paid for it every year in dividends. On top of that, the value of his stake has ballooned.
No investment is without risks. Coca-Cola faces challenges from sugar taxes to ingredient inflation. They could hurt profits and ultimately a business paying out dividends depends on it making money. They are not guaranteed.
But the striking thing about Buffett’s investment in Coca-Cola, like so many other shares he owns, is the simplicity of it.
He identified what was already a brilliant business and bought it when the shares had an attractive price relative to their potential. Then, he held them for decades. That is exactly the sort of long-term approach to investing I would adopt if I was about to start investing for the first time now.
