In a difficult economy, it is still possible to try and build personal wealth. That is true even with only a small amount of disposable income and minimal or no savings. To try and increase my wealth this year, I am following some of the techniques applied by billionaire investor Warren Buffett.
Starting with what you have
Take Buffett’s approach to the right moment to begin investing, for example. Did he save up for years or even decades until he had thousands of pounds to start buying shares?
No. He began investing in the stock market as a schoolboy, buying just three shares with money he had earned as a paperboy.
That sort of action-oriented approach to investing has enabled him to have an investment timeline stretching over decades. There is no time like the present.
Sticking to what you know
There are loads of brilliant shares Buffett did not buy. Yet he does not regret that.
Why? He did not have the right expertise or knowledge to make a confident judgment about whether they were brilliant.
Buffett does not spend lots of time regretting shares he did not buy that he did not understand. Instead, he spends time trying to find great purchases that fall inside his circle of competence.
Different investors have their own circle of competence. Mine is different to Buffett’s, for example. And so is yours, in all probability.
But I think the principle of sticking to what an investor knows is useful. Putting money into a company without understanding it is not investing, but trading.
Spreading risks
Buffett likes Apple – a lot. And no wonder. Owning the tech company shares has seen his firm make a paper gain of over $100bn and has also generated significant dividends. It is by far his largest shareholding.
But while Apple has been an amazing investment for the ‘Sage of Omaha’, he is too smart to put all his eggs in one basket.
Like any savvy investor, he knows that even the best companies can run into unforeseen difficulties – so spreads his portfolio across different businesses.
Looking for bargains in plain sight
Apple was already very successful, well-known and profitable when Warren Buffett started buying its shares.
Looking across his portfolio, it contains other household names that had been around for decades before Buffett started to buy.
From American Express to Coca-Cola, Buffett owns shares in businesses that have already shown their worth over the long run before he bought into them.
That explodes the myth some people hold, that the only way to make money in the stock market is by finding little known companies in new industries.
Buffett has built vast wealth by investing in large, proven companies that have already demonstrated their capacity to make profits. I am following his lead and scouring the market for brilliant companies trading at attractive prices.
