When you hear the name Warren Buffett, what comes to mind? Success? Money? Investor? There is no doubt that the Buffett name suggests many different perspectives. One thing is for sure; his name is known for a reason. From 1964 to 2014, Buffett’s Berkshire Hathaway returned an amazing 1,826,163% for shareholders. People can take a page out of Buffett’s handbook and apply his investment rules to their portfolios and hope to create success. Want to turn your portfolio into a small Berkshire Hathaway? Keep reading.
- Practice the 50-year rule
Here’s your first clue. When you’re deciding whether or not to invest your money into a company, question if that company will still be booming in 50 years. Did you know that Buffett has always avoided investing in tech companies? When thinking about the future, think about demands that will still be around; groceries, homes, and insurance. Will certain technology products like laptops be prosperous in the year 2067?
- Keep your eye on stable companies
Matthew Frankel from The Motley Fool writes, “There is no set definition of a ‘stable’ company, and every stock has some degree of risk, but it’s a good idea to check out a company’s history before investing (at least the last 10 years). If a company has an inconsistent history of profitability, the business would likely be too unstable for Buffett’s taste.”
- Buy stocks you would want if the market closed for 10 years
Don’t obsess over the movement of the daily stock prices. That habit is worth breaking. We all know stock prices adjust and change daily, so monitoring its every move could lead to rash decision making. When you sell low, you’re part of the problem; not the solution.
- Invest in long history
There is a reason Berkshire’s largest stock holdings such as Wells Fargo and Coco-Cola have been doing so well—they’ve been around for decades. Buffett feels that investments in mature companies are sometimes undervalued by the market. It’s companies like these that stand the test of time, and those are the companies Buffett likes to capitalize on.
- Find shareholder-friendly management
It only makes sense that Buffett invests in companies with shareholder-friendly management, because he prides himself on having a similar philosophy. In the case of a justified dividend policy, frequent communication, with shareholders and executives who own a majority of the stock themselves, may indicate a company with its shareholder’s best interest in mind.
We can’t dispute that Buffett has produced extraordinary results, averaging a 21.6% annual gain in share prices over a 50-year period. However, we can add something to his strategy! We always recommend that the core of your wealth be somewhere less volatile than Wall Street. By using what we call The Perpetual Wealth Strategy, and by incorporating some of Warren Buffett’s rules and principles into your own portfolio, you could set yourself up for great success.
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FAQ
Q: What are the five rules inspired by Warren Buffett to potentially help individuals build wealth?
A: Five rules drawn from Warren Buffett’s wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.
Q: How does investing for the long term contribute to wealth accumulation?
A: Investing for the long term allows individuals to benefit from compounding returns and navigate market fluctuations, potentially leading to wealth accumulation over time.
Q: Why is staying informed considered valuable for wealth creation?
A: Staying informed about financial markets and investment opportunities empowers individuals to make informed decisions, potentially increasing their chances of successful wealth-building.
Q: How does maintaining a competitive advantage play a role in Warren Buffett’s approach to wealth-building?
A: Warren Buffett’s emphasis on maintaining a competitive advantage suggests that individuals should invest in businesses or assets with unique strengths or qualities that can generate sustainable returns.
Q: Why is focusing on quality mentioned as a strategy for wealth creation?
A: Prioritizing investments in high-quality assets or businesses with strong fundamentals can potentially reduce risks associated with lower-quality investments.
Q: How does managing risk align with Warren Buffett’s wealth-building approach?
A: Careful risk management is essential to protect investments and minimize potential losses, aligning with Warren Buffett’s long-term wealth-building strategy.
