Image source: The Motley Fool
Having nothing in the bank may not seem like a promising starting point for building wealth. But when he was a schoolboy, billionaire investor Warren Buffett began saving money which he then used to finance his first stock purchases.
In the decades since, Buffett has proven himself to be a master of the stock market. By learning the techniques he has used, I believe I can hopefully improve my own chances of generating wealth in the stock market.
Buffett thinks in decades, not days
The first point to note is that Buffett doesn’t buy stocks today in the hope that they will skyrocket next week and he can make a profit. He is not a speculator but a long-term investor.
That means you think in terms of years or decades.
But it also influences how Buffett thinks about stocks. For him, they are not just pieces of paper with a price. Instead, he sees them as a small stake in a business.
So the reason you own shares in companies like Apple and Coca Cola It’s not because I expect to make quick money selling them.
Rather, it’s because he likes the long-term business prospects of those companies and felt he had an opportunity to buy shares for less than what he considered their long-term value.
Waiting for great opportunities
How active is Buffett in the stock market? Perhaps surprisingly, the answer is not very good!
Buffett can go years at a time without making any major purchases or sales.
That doesn’t mean it’s inactive. Quite the opposite. Every day, Buffett reads hundreds of pages about companies and the market. He constantly tries to identify what he considers outstanding businesses.
But Buffett’s approach to building wealth involves identifying great companies with attractive stock prices, then buying and holding them.
Instead of taking advantage of every reasonable investment opportunity that comes his way, Buffett ends up making a fairly small number of what he considers very promising stock purchases, rather than a large number of mediocre ones.
This is a simple but powerful lesson for a private investor like me.
Offers hidden in plain sight
When looking at the list of his biggest holdings, one thing immediately jumps out. Many are household names that have been in business for decades.
Some new investors believe that if they can find a small company with a great future that is currently not well known, they could become rich.
Buffett never puts all his eggs in one basket. He sticks to the big companies that he understands. They have often been trading successfully for many decades already.
Instead of trying to get rich in little-known corners of the stock market, Buffett simply looks for quality bargains hidden in plain sight. I can and intend to do the same!
