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I’d invest £20 a week the Warren Buffett way as I aim to build wealth

Warren Buffett at a Berkshire Hathaway AGM
Image source: The Motley Fool

When it comes to building wealth within a lifetime, few have performed as well as Warren Buffett. The self-made billionaire has prospered thanks to his approach to identifying brilliant investments he can buy and hold for the long term.

Buffett is transparent about a lot of his investment decision-making processes. That means someone like me can learn from him and choose to apply some of the lessons in my own share purchase decisions.

Focus on wealth creation

Can one really aim to build wealth by investing a modest amount like £20 a week? I think the answer is yes.

Buffett started small. As a schoolboy, he invested his savings in three shares of one company. Clearly over time he had far larger amounts at his disposal, but I think the principle stands. Starting small to build wealth over time by saving regularly and making smart investment decisions.

I think it is critical to bear in mind along the way that the target is to build wealth. That can rule out choices that look potentially lucrative but are also very risky. As Buffett says about investing: “Rule number one: never lose money. Rule number two: never forget rule number one.”

Take a long-term approach

A lot of the businesses in Buffett’s portfolio could easily have existed a century ago – and many of them did. From railways to banks and soft drinks like Coca Cola to baked bean producer Kraft Heinz, a lot of Buffett’s choices have stood the test of time.

I reckon many of them may be here another century from now.

Buffett tries not to invest in firms just because they had a great past. Indeed, some of his self-confessed biggest mistakes have been doing just that, like when he invested in shoe and clothes manufacturing businesses whose best days were behind them.

He looks for a company with a business model he thinks can do well in the future. Many such firms have already done well in the past and may continue doing so, thanks to a competitive advantage in a market with enduring customer appeal. When investing, like Buffett, I focus always on the long-term prospects of a business before considering whether to buy its shares.

Keep things simple

Companies like Coca-Cola illustrate another facet of how Buffett invests. He tends to keep things simple.

That means he does not invest in any industry he does not understand. He does not buy into a company if its financial reports are not clear enough for him to understand. He sticks to a few areas of business in which he has built deep expertise and often holds shares for many years, or even decades.

He also reduces the risk of one bad investment wiping out his portfolio by diversifying across a range of holdings.

It can be easy to think that successful investing must be a complicated pursuit, or else more people would do it. In fact, Buffett has shown he likes to keep things as simple as he can.

The post I’d invest £20 a week the Warren Buffett way as I aim to build wealth appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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