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Famed billionaire investor Warren Buffett seems happy to continue working. Well into his nineties, he continues to lead the company. Berkshire Hathaway.
Despite that, Buffett said that for those who don't want to work decade after decade, it's important to learn how to make money while you sleep.
What does that mean in practice and how could it help me increase my own passive income streams?
penny after penny
Let's take the consumer goods company as an example. Unilever (LSE: ULVR). It sells everyday products such as shampoo and soap. In some markets, he sells them in single-use sachets for a few cents each.
Selling a common product for pennies may not seem like a fortune. But the pennies soon add up. Unilever products are used several billion times a day around the world. Thanks to its unique brands and formulations, it can charge a premium price even for mundane consumer goods.
That allows the company to earn billions of pounds in profits annually and fund a quarterly dividend for its shareholders.
So by buying even a single share of Unilever, you could hopefully start earning passive income (albeit a very modest one share) in the form of dividends.
While I sleep and people from Australia to Zimbabwe wash their hair, expect profits to accrue at Unilever that could help fund the dividend.
Buffett knows how to make money!
This is not lost on Buffett. In fact, a few years ago he tried to buy all from Unilever.
He didn't make it. Today he could buy shares of the consumer goods giant for a price similar to that offered by the 'Sage of Omaha'.
But although his attempt to acquire Unilever failed, Buffett owns stakes in many other dividend-paying companies whose products are used daily around the world, such as Apple and Coca Cola.
Buffett's investment in Apple has been incredibly successful in less than a decade. But he's a smart enough investor to know that business can be unpredictable.
Ingredient inflation could affect the profit margins of Coca-Cola or Unilever. Unilever's plan announced this week to cut thousands of jobs from its workforce risks damaging employee morale and productivity.
That's why Buffett keeps his portfolio diversified across a variety of different stocks. I think it's an important risk management principle that can be applied even with a small portfolio.
Keeping it simple
As a passive income plan, that sounds simple. I think it is. By sticking to what Buffett calls “my own circle of competence,” I can find companies that I think have good business models that can help support dividends.
If I can buy shares of them when they sell at an attractive price, I hope to start generating long-term passive income streams and make money while I sleep.
