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Warren Buffett is the world’s most famous investor and although he trades billions, his folk wisdom also works for those who only have a few pounds at their disposal.
If I didn’t have savings at 30, I would want investment advice from someone who knows how to build wealth. Few can match Buffett in that regard. However, novice investors might be surprised by his attitude toward wealth.
First, he doesn’t think it’s something investors can do overnight. It takes years, decades. Longevity is his forte. The man is still investing at 93, for God’s sake, and he is still beating the market by a mile.
If you were just starting out, the first thing you would do is take your long-term vision. As Buffett once said: “If you’re not willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
When I started investing seriously, holding a stock for 10 minutes seemed like a long-term commitment. I sold my winners and losers promptly and racked up plenty of trading fees along the way. Unfortunately I didn’t make any money. Someone who starts investing in their 30s has decades to accumulate their wealth and should think long term.
If I were in your position, my goal would be to build a retirement portfolio that can last the entire course. It would be composed mainly of high quality. FTSE 100 blue-chip companies, with a solid track record of increasing profits and paying dividends.
I would also take advantage of any stock market sell-off to buy them. Which is helpful, because it feels like we’re in the middle of one right now. Buffett sees a stock market decline as a great opportunity to increase his holdings. “Bad news is an investor’s friend.” he said on one occasion.
This may seem contradictory. We want to make money, don’t we? Don’t lose it. However, when stock prices fall, it also means they are cheaper. If they pay a dividend, investors will also get a higher return.
I would buy premium stocks.
This doesn’t mean buying old junk at an accident. Buffett likes to buy “quality stocks with good liquidity and solvency positions that generate a lot of cash”. He also likes to invest in companies that have a sustainable competitive advantage, or what he calls a “pit” against competitors. They should have, develop and support outstanding management teams.
If a company can do all that, then there is no need to fear a broader stock market crash. This is when investors can get to work. Buffett puts it very well: “Opportunities arise infrequently. When it rains gold, bring out the bucket, not the thimble.”
It’s always a good time to buy a good company, but even better if it’s available at a discount. As Buffett also said: “Every decade or so, dark clouds will fill the economic skies and briefly it will rain gold.”
I can see a lot of dark clouds around right now. This may deter some younger investors, but instead they should listen to Buffett and take this opportunity to build their personal retirement gold mine.
