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Legendary investor Warren Buffett is a multi-millionaire. In fact, he is a multimillionaire many times.
But Buffett started investing with just a small sum of money he had saved in a paper round when he was a college student.
If I were to set aside £5,000 in a stocks and Shares ISA or share trading account in early 2024 and invest it using the Warren Buffett method, could that make me a millionaire in the future? Once finished it would be a very welcome start!
pass the cigarettes
In fact, I think I could. However, there are some caveats.
Investing like Buffett is a long-term venture. I could become a millionaire at some point, but it would probably take many years.
As an example, consider Buffett's own investment history.
If you had invested £5,000 (ignoring exchange rate movements) in your business Berkshire Hathaway In 1965, at the beginning of his presidency there, just 17 years later, in 1982, the per-share market value of my holding reached seven figures.
Curiously, however, in another three years it would have doubled, to over £2 million.
Invest like Buffett
Few investors could match Buffett's track record. When he took over Berkshire Hathaway, he was already an experienced stock investor.
But, although the timeframes may be longer, I believe that by investing like Warren Buffett, you could realistically aim to turn £5,000 into a million pounds in the coming decades.
Take for example the huge jump in Berkshire's stock valuation between 1982 and 1985.
Several key factors help explain this. A long-term approach is being taken. Simply running 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.
Furthermore, the per-share market value of Berkshire stock grew so strongly in part because Warren Buffett did not pay dividends to his shareholders. Instead, he reinvested his profits. That allowed him to take advantage of capitalization. As a private investor, I can also do it on a small scale by reinvesting my dividends.
Aim for a million
In fact, imagine if I could make a compounded annual gain on my portfolio of around 15%. By simply using those two moves from Warren Buffett (taking a long-term investment approach and compounding) my £5,000 would have become £1 million in less than 40 years.
Now, a 15% compounded annual gain is less impressive than what Buffett achieved during his time at Berkshire (his figure is 19.8%), but it's still not easy. I would have to look for brilliant stocks selling at the right price to help me aim for the million.
But I can do that. These actions exist.
Becoming a millionaire is not easy. But it is possible if I buy the right shares, even with a few thousand pounds to invest.
