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Warren Buffett is known for his buy-and-hold investing strategy, where he makes firm bets on underperforming stocks while other stocks are losing money.
At the company’s annual meeting, Berkshire Hathaway shareholders have the opportunity to hear Buffett’s opinion on a number of topics.
One investor who attended the 1999 meeting got to the point in a memorable way. “Mr. Buffett, how can I make $30 billion?” he asked (1).
As always, the Oracle of Omaha delivers complex theory in simple terms—rules that can guide any investor.
“If I left school today and I had $10,000 to invest… I would probably focus on small companies… You have to buy businesses, or small businesses as they are called stocks, you have to buy them at attractive prices, you have to buy good businesses.”
If you want to know the secret to helping a nonagenarian build great wealth, here are three basic rules he needs to consider.
IBM (NYSE: IBM ) founder Tom Watson Sr. once said, “I’m no genius. I’m smart at some things, but I stop at them(2).” It’s a mantra that Buffett applies to his investing.
Buffett has built his wealth through a disciplined and patient approach by focusing on industries he understands and avoiding the temptation to chase trends.
However, his strategy comes with an important caveat: volatility. At the 2020 Berkshire Hathaway shareholder meeting, Buffett reminded investors of the inevitable ups and downs.
“When you buy a stock, you have to be prepared for it to drop 50% or more, and as long as you’re happy with the stock you’re holding, you have to be happy with that,” he said (3).
Read more: Nearing retirement but no savings? Don’t panic, you’re not alone. Here are 6 easy ways you can catch up (and fast)
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Buffett’s best advice to investors is to start early. He explains his wealth-building strategy with a simple metaphor.
“We started with a small snowball on top of a very high mountain,” he said (1). “We start snowballing from a very young age, and of course the nature of compound interest is that it behaves like a snowball.”
In fact, Buffett’s career is a key part of his vast wealth. He bought his first stock at age 11 and is still actively investing today.
In fact, Buffett accumulated most of his wealth after the age of 65. In 1999, his net worth was only $30 billion. Today, according to Bloomberg, that number has grown nearly fivefold to approximately $150 billion(4).
Regular investors can best take advantage of the power of compound interest by starting early. With platforms like Robinhood, you can invest in ETFs like the Vanguard S&P 500 to start building your money.
Robinhood offers 24/7 support, and you don’t pay any commissions on stocks, ETFs, and options. Their platform also offers traditional IRAs and Roth IRAs, so you can benefit from tax-efficient retirement investing.
New Robinhood customers can also get free stocks once you sign up and link your bank account to the app.
You can choose stock awards from top U.S. companies ranging from $5 to $200.
But what if you don’t have Buffett’s hypothetical $10,000 to start with?
Even if you have extra change, you can still start investing. Use a tool like Acorns, a popular app that links to your credit and debit cards and rounds the cost of each of your purchases to the nearest dollar. Acorns invests the difference (your change) into a diversified portfolio so you can build wealth with little to no thought.
Signing up for Acorns takes just a few minutes and you can invest in Buffett’s favorite S&P 500 ETF for just $5. Even better, if you sign up today and make a monthly deposit, Acorns will add a $20 bonus to help you get started on your investing journey.
Buffett once said that if he started over today with $10,000, he would focus on small businesses first. “I would probably focus on smaller companies because I work with smaller amounts and there’s a greater chance of overlooking things in that area,” he told the shareholder meeting(1).
In his early days, the billionaire investor focused on extremely small companies considered small-cap stocks. In 1983, he purchased a small furniture company in Nebraska that was still expanding across state lines (5). He also purchased See’s Candies in 1972, when the company’s annual profits were only $4 million(6).
These small businesses are being overlooked and have more room to grow. That means Buffett has the opportunity to buy them cheap and watch them expand.
Need more in-depth guidance on which small-cap stocks to bet on?
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Over four years, Moby’s recommendations outperformed the S&P 500 by an average of nearly 12% across nearly 400 stock picks.
With their easy-to-understand reports, you can become a smart investor in just five minutes and maybe even make some investments that even Buffett would approve of. This can also be the first step in building your own circle of competence.
While Buffett usually gets the most attention, his former business partner Charlie Munger is also a source of wise financial advice. On the same shareholder call in 1999, Munger expressed his views on investing:
“For most people, the hardest part of the process is the first $100,000. If you’re starting from scratch, raising $100,000 is a long struggle for most people. I think people who get there relatively quickly are going to be helped if they’re passionate about rationality, very eager, and opportunistic, and make steady, substantial cuts. I think those three factors are very helpful(1).”
Reducing income expenses and using excess cash to save and invest is crucial to building strong savings.
However, if you’re not a serious budgeter, it can be difficult to keep track of where your money is going. For those who want to take control of their income and spending, apps like Rocket Money can help.
Rocket Money’s intuitive app offers a range of free and premium tools, including subscription tracking, bill reminders and budgeting basics, while advanced features like automated savings, net worth tracking, customizable dashboards and more make it easier to stay on top of your super contributions and overall financial goals.
Rocket Money also makes it easy to flag recurring subscriptions, upcoming bills, and unusual charges by pulling transactions from all your linked accounts.
This can help you cut unnecessary costs, and you can then manually transfer the savings directly into your investment funds. No spreadsheets, no guesswork, no stress. Small habits like this can have a big impact over time.
Another habit to consider is reviewing your spending every year to see what you can cut. Many of us don’t think we can save money on annual expenses like insurance. However, with Official Car Insurance, you can easily compare quotes from multiple insurance companies, such as Progressive, Allstate, and GEICO, to ensure you’re getting the best deal.
According to the American Automobile Association (AAA), by 2025, the total cost of owning and operating a new car will climb to approximately $12,297 per year, or $1,024.71 per month(7).
Many people overpay for their car insurance without realizing it. Rates can vary greatly depending on your state, driving history, and vehicle type, so it’s important to review your bill every year and shop around for a better deal. By using OfficialCarInsurance.com, you can find rates as low as $29 per month in just two minutes.
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