The legendary investor Warren Buffett is a millionaire many times over. In fact, he is a billionaire many times over.
But Buffett started investing with just a small sum of money he had saved up on a paper round as a schoolboy.
If I was to set aside £5,000 in a Stocks and Shares ISA or share-dealing account at the start of 2024 and invest it using the Warren Buffett method, could that make me a millionaire in future? Once over would be a welcome enough start!
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Pass the cigars
I actually think it could. However, there are a few caveats.
Investing like Buffett is a long-term enterprise. I might become a millionaire at some point, but it would likely take many years.
To illustrate, consider Buffett’s own investment track record.
If I had invested £5,000 (ignoring exchange rate movements) in his company Berkshire Hathaway back in 1965 at the start of his chairmanship there, it would only have been 17 years later in 1982 that the per-share market value of my holding hit seven figures.
Interestingly, though, within another three years it would have doubled, to over £2m.
Investing like Buffett
Few investors could match Buffett’s track record. By the time he took over Berkshire Hathaway, he was already a highly experienced stock market investor.
But, although the timelines may be longer, I do think that by investing like Warren Buffett, I could realistically aim to turn £5,000 into a million pounds over the next several decades.
Take that massive jump in the valuation of Berkshire shares between 1982 and 1985, for example.
Several key factors help explain that. One is taking a long-term approach. Simply being out of Berkshire shares after 17 years when I had hit the million mark would have meant I missed the opportunity to double my money in just three years.
Additionally, the per-share market value of Berkshire shares grew so strongly partly because Warren Buffett did not pay dividends to his shareholders. Instead, he reinvested its earnings. That let him take advantage of compounding. As a private investor, I can do that too on a small scale by reinvesting my dividends.
Aim for a million
Indeed, imagine I was able to earn a compound annual gain on my portfolio of around 15%. Simply using those two Warren Buffett moves – of taking a long-term approach to investing, and compounding – my £5,000 would have turned into £1m in under 40 years.
Now, a 15% compound annual gain is less impressive than Buffett has achieved in his time at Berkshire (his figure is 19.8%) but it is still not easy. I would need to hunt for brilliant shares selling at the right price to help me aim for a million.
But I can do that. Such shares exist.
Becoming a millionaire is not easy. But it is possible if I buy the right shares – even with just a few thousand pounds to invest.
