Investing in the stock market can seem daunting. But by turning to Warren Buffett for some inspiration, I think many issues that seem complex can be simplified.
Buffett is one of the most successful investors of all time. Starting with a tiny sum aged just 11, the ‘Oracle of Omaha’ has gone on to build a fortune above $120bn.
Now, unfortunately, the chances of me amassing a fortune similar to Buffett’s are slim. However, that’s not to say I should ignore what he says and the actions that he’s taken. His advice can help retail investors starting out with small sums to try and beat the market.
If I were to start from scratch today, here are the three Buffett tips I’d follow.
Be consistent
Beginning without any existing capital may be demotivating. But investors can still build up large sums starting with minimal outlay. The key to this is consistency. I’m aware that putting money aside at the end of every month and investing it is vital to growing my pot.
I’d also take steps such as always reinvesting my dividends. From this, I’d benefit from compounding, which means I’d be earning interest on my original investment as well as my returns. With this, I can build my nest egg up more quickly. On multiple occasions, Buffett has pinpointed the power of compounding as a key reason for his wealth accumulation.
Long-term vision
Coupled with consistency is investing for the long run. It’s easy to be tempted by online advertising promoting quick gains in the stock market via methods such as day trading. But the market has proved time and time again the best way to see rewards is to buy stocks and hold them for years and decades.
We’ve experienced major volatility in the last few years. And I’m certain 2024 will be similar. From interest rates to conflicts and elections, there are plenty of events that will impact the market this year. However, by remembering my goal, I can ignore short-term peaks and troughs in favour of long-term gains.
Buffett once said: “If you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes”. I factor this into every investment decision I make.
Ready to pounce
Buffett also said it’s good to “be greedy when others are fearful”. And this is another piece of advice I think is important.
What he essentially means when he says this is to capitalise on opportunities that other investors may be turning their backs on. While 2024 may be volatile, with that comes the opportunity to buy cheap shares.
I used last year as a chance to put this into action. For example, I purchased shares in Barclays, which trades on just four times earnings. I also snapped up some shares in Legal & General.
The plan
I view now as a great time to start investing money in the stock market. No doubt 2024 will be choppy. But by adopting these methods, I’m confident I could build wealth. Buffett has averaged an annual return of 20% over the decades he’s been investing. Here’s hoping I’m able to do something similar!
