Warren Buffett is recognised as one of the worldâs leading investors. He has built enormous wealth through the power of investing in businesses. Iâm using some of his key lessons to help me become rich over time.
Buffett has built his company Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) into a world leader with investments including insurance, railroads, banking and Apple Inc (NASDAQ: AAPL).
While his choice of investments has been part of his success, there are a couple of important factors that I think have enabled Buffettâs wealth growth.
Investing when the share market is down
Itâs obvious to say, but I think hefty market declines can have the biggest impact on peopleâs wealth, depending on how investors behave.
If people decide to sell when share prices have dropped, it means theyâre locking in the negative returns their portfolio has experienced. We could call that buying high and selling low.
Just look at whatâs happened to the global share market over the past year with the Vanguard MSCI Index International Shares ETF (ASX: VGS):
I believe that investors need to be patient during volatility â crashes regularly happen, so we should expect them. So, just holding onto good ASX shares during downturns seems like a smart move to me.
But, buying shares during a market decline could be a very good move. The lower the purchase price, the bigger the gains over time, if that particular investment does go up.
Warren Buffett advice about market volatility
Buffett once said: “Be fearful when others are greedy, and greedy when others are fearful.”
He also gave an excellent analogy about why itâs good to remain optimistic about investing when share prices drop:
To refer to a personal taste of mine, Iâm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the âHallelujah Chorusâ in the Buffett household. When hamburgers go up in price, we weep. For most people, itâs the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people donât like them anymore.
A third example of his advice regarding price falls comes from his 1997 annual letter to shareholders:
If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.
Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Foolish takeaway
Choosing good investments is important. But itâs no good if investors sell when the market goes through volatility. Missing out on good prices could be a mistake as well. It takes patience to enable investments to compound and grow over time.
I used the COVID-19 crash as a big opportunity to invest and Iâm using the current lower prices to buy a number of attractive ASX shares at cheaper prices than we saw in 2021. By using — and living by — Warren Buffettâs advice, I think it makes it more likely that I can become wealthy.
The post Forget gold, Iâm using the Warren Buffett method to try and get rich! appeared first on The Motley Fool Australia.
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More reading
- 3 fantastic ETFs for ASX investors to buy this month
- With almost no investments at 30, can ASX shares still make me rich?
- 3 of the best ASX ETFs for investors to buy in January
- 2022 wasn’t kind to the Vanguard MSCI Index International Shares ETF (VGS). What now?
- How Iâd invest $300 a month in ASX dividend shares to target a $30,000 annual second income
Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Berkshire Hathaway, and Vanguard Msci Index International Shares ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway, short January 2023 $265 calls on Berkshire Hathaway, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple, Berkshire Hathaway, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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