Investing in the stock market from scratch can be an overwhelming experience. But if I were starting from zero today, there’s one man in particular I’d turn to for some inspiration. That’s Warren Buffett.
Buffett is my favourite investor. He’s one of the best ever. Starting with just a few dollars, he’s built a fortune of around $120bn. What’s more, he takes complex issues and simplifies them.
That’s why I think he’s an ideal role model for retail investors. Of course, we won’t be trading in sums as large as he’s used to. But I’d still use his advice to try and beat the market.
Understanding my investments
Over the years, Buffett has dropped plenty of golden nuggets of advice. But in my opinion, the most important of them all was when he said to understand the companies that you buy.
Starting out, there’s a magnitude of businesses and industries to explore. However, focusing on businesses that I have prior knowledge of to know how they generate revenue will allow me to streamline my research. Buffett once said investors should be able to write down exactly why they plan to invest in a business. For me, that’s vital.
Buying for the long haul
Alongside this, a further fundamental tip is to invest for the long term.
There are plenty of advertisements out there promoting ‘get-rich-quick’ schemes via methods such as day trading. But Buffett has proven the best way to build wealth is by thinking in years, not hours and days.
Volatility in the stock market is inevitable. And it can be demoralising to see the value of investments dwindling. However, like Buffett, I’d ignore all of that in favour of the long run.
Coupled with that is the idea of being consistent. It’s possible to build up large sums of capital from scratch, but consistency is key. For me, this may mean investing a set amount at the end of every month. By doing this, I’d be able to build up my pot quicker.
By employing methods such as reinvesting my dividends, I’d also be able to benefit from compounding, which means I’d earn interest on my monthly investments as well as my returns.
What to buy
So, if I were to take these two tips into consideration, what sort of business would I look to invest my money in?
Well, what better option than Buffett’s top holding, Apple (NASDAQ: AAPL)?
Its business model is easy to understand. I, like nearly 20% of the world’s population, own an iPhone. Therefore, I’m aware of the value the business provides to its customers.
And it’s also proved to be a great investment for long-term shareholders. Of course, past performance is no indication of future gains. Yet over the last five years, its stock is up 368%. That’s impressive growth.
There are a few risks with Apple. Inflation may continue to impact the business. With a cost-of-living crisis, consumers may look to cut back on spending. Furthermore, ongoing issues in China are a worry.
However, I’m still bullish on the firm. And it’s taken strides to combat these issues, such as diversifying its revenue streams. Starting from scratch, it’s stocks like Apple that I’d target.
The post Starting with zero savings? Here are 2 Warren Buffett tips I’d use to build wealth appeared first on The Motley Fool UK.
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Charlie Keough has positions in Apple. The Motley Fool UK has recommended Apple. 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.
