Billionaire investor Warren Buffett needs no introduction. His name practically spells success. He is the second richest person on earth.
Did he inherit any wealth? NO.
Did he cheat or steal his way to the top? NO.
Rather, he made all of his money by investing, making him one of the most influential investors of all time. Just his own smarts and hard work. Here’s how he did it.
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Buffett loved investing from a very early age. He purchased his first stock at the age of 11. He bought three shares of Cities Services Preferred at $38 per share which he held on to despite its quick price drop, to $27 per share. But as soon as they reached $40, he sold it right away making it his most important investment lesson, which has influenced his investment decisions up to this day: Buy and hold. If he had waited out a little longer, he could have gained more as the price of that stock ultimately soared to nearly $200 per share.
But in high school, he and a friend operated a lucrative pinball business at barbershops across his hometown wherein they earned $4 per night and reinvested those earnings in more pinball machines. After a year, they were able to sell the business for over $1,000.
Moreover, he undertook a number of odd business ventures such as delivering newspapers, selling gum and soda, and washing cars. Indeed, he has caught the investing bug early.
Buffett mastered his emotions. He is able to stay rational in times when most people are acting based on emotion. He believes that investing isn’t about high IQ. If it was, every smart person would be a billionaire.
Most investors in the face of fear and loss sell stocks. They say they won’t but in the heat of the battle they do. But Buffet seems to hold stocks forever. He says he never sold a single Coca-Cola share in which he has 400 million shares.
He has had over 6 decades of deliberate practice and it is very clear that he is still working on getting better every year. He has had an impeccable and consistent record of more than 20% return per year since the start of his career.
He does this by steering out of risk and investing (either as stocks or owning them outright) in attractively valued, high quality, longest term companies that he thoroughly understands and is prepared to hold for the long term.. He is an expert at this and has spent most of the hours of his life acquiring the knowledge required to achieve his fantastic gains.
Buffett is a firm believer of compounding interest and likes to buy good businesses below their intrinsic value and wants a good margin of safety. He has been practicing this investment strategy for a very long time and has become very good at it.
Through his various business endeavors, he accumulated so much money. He doesn’t only use compounding principle in investments but same applies to knowledge as well. When asked once about his key to success, he replied:
“Read 500 pages (of books) every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
Of course, there are many ways that you can apply this kind of Buffett-inspired investing to the stock market. If you were active in reading books even after 25, just imagine what you are capable of achieving using your knowledge.