It’s a little-known fact that stock market investing has turned around the fortunes of many ordinary people. Billionaire Warren Buffett is an American investor who has inspired many individuals to embark on the road to riches through stock market investing. He’s shown us how to become millionaires, and I now think it’s a possibility for anyone.
Can I make millions with little capital?
That’s all very well, but is it really possible to become a millionaire if I have little money to begin with? The simple answer is yes. But it will take is time. Stock market millionaires are not made overnight. Instead, stock market investing is a slow (but effective) process for building future prosperity.
Buffett runs a company called Berkshire Hathaway, which he acquired in 1965. He uses this as an investment vehicle for his stock purchases. The premise of Buffett’s investing strategy is to buy and hold for the long term. Over time, the companies he’s invested in grow, increasing the size of his investment. Much of his investment growth he credits to the magical power of dividends. They can contribute to the compound interest phenomenon of building wealth exponentially by earning interest on top of interest.
For example, if I invested £200 a month and generated an effective annual interest rate of 10%, after 40 years I would have accumulated £1,118,921. If I can afford to increase the monthly amount to £300 and reduce the time to 35 years, then I will accumulate £1,027,768. Adjusting the monthly amount or the interest rate will change how long it takes to generate £1m. This shows how it’s a goal anyone can achieve, with commitment and some careful stock-picking techniques.
A little wisdom reduces risk
Over the years, Buffett has given us many words of wisdom. Most of them, he doles out through his annual letter to Berkshire Hathaway shareholders. One of his gems includes “our favorite holding period is forever”, which restates his buy-and-hold philosophy. Another is that “risk comes from not knowing what you’re doing”. This serves as a reminder to would-be investors to understand what they’re buying into before parting with cash.
If imitation is the sincerest form of flattery, then Buffett is the biggest target of such flattery in the investing world. Many investors have replicated his methods to their personal gain and some professionals have done so too. One such man is Nick Train. He has built his UK-focused funds around the Buffett methodology and made many investors rich along the way. He too advocates a buy-and-hold strategy and is reluctant to sell anything.
Buy and hold
It’s difficult to have the conviction to hold stocks that appear to be losing money. This is especially true given the economic landscape today is filled with uncertainty. That’s why it’s reassuring to learn that history has shown it pays to be patient. Apparently, investors who held with conviction and even added to their holdings during a downturn, gained the most in the long run. That’s why I think this is an opportune time to buy stocks at knock-down prices, and I’m constantly looking for bargain stocks to buy and hold.
I really do think it’s possible to become a millionaire through stock market investing. Therefore, with discipline and a plan in place, I strive to make stock market investing my wealth generating strategy of choice.
The post How to become a millionaire! Why I think it’s possible through stock market investing appeared first on The Motley Fool UK.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short December 2020 $210 calls on Berkshire Hathaway (B shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020