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Invest like Buffett

December 18, 2019


Kristen Lunman

Written by Kristen Lunman

Kristen is General Manager of Hatch - a digital investment platform that gives New Zealanders access to the US share markets. Powered by Kiwi Wealth, Hatch provides easy, affordable, and reliable access into the largest, most liquid share markets in the world.


Hatch GM Kristen Lunman shares some investing wisdom from one of the greatest investors of all time -  Warren Buffet

 

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Imagine investing $1,000 today, happily going about your life and, 54 years later, waking up to almost $24 million.

It could happen! As CEO of Berkshire Hathaway, Warren Buffett has delivered an astounding 20.5% annual return for his shareholders since 1964. That’s double the return of the S&P 500 index over the same period. Let’s take a closer look at how the greatest investor of all time grows his wealth so that you can apply some of his wisdom to your investing journey.

What makes the Oracle of Omaha tick?

Buffett’s philosophy is: don’t speculate, invest in quality companies and stay  for the long term. Sound simple? Here are some actionable tips to put into practice today.

 1 Start investing early 

"Someone's sitting in the shade today because someone planted a tree a long time ago."

The cold hard fact is that it’s always better to invest sooner rather than later. While prices of individual shares  rise and fall daily, over time the share markets tend to rise in value. Time is a factor in growing our wealth, so there’s no better time than today. If you start making investing a habit, you can future-proof your finances. You don’t have to invest thousands. You can start with a little bit here and there.  These investments can add up, helping you to reach your goals of travelling, buying a home, sending kids off to university, or retirement.

2 Invest in what you know

“Never invest in a business you cannot understand.”

Buffett often uses the concept of a "circle of competence" when investing. This circle of competence consists of all the businesses that an investor is familiar with. For example, someone who has spent the last ten years working in a clothing store would have an advantage when understanding the competitive advantages of retail chains. They would be able to pinpoint the strengths and weaknesses of the business and evaluate them against the competition. With investing, many people start with an exchange-traded fund focused around an industry (e.g. companies in technology or healthcare) or a specific company that they know. Think about the brands you buy and companies that you back to grow. You can start a watchlist in Hatch of these companies while you do your research. Watch what the share price does over time, and when you’re ready, dip your toe in.

3 Buy and hold

“Money is made in investments by investing and by owning good companies for long periods of time”

As far as Buffett is concerned, he’s in it for the long haul.

“It’s exactly the same way as if you are going to buy a farm,” “You would not get a price on it every day, and you wouldn’t ask whether the crop yield was a little above expectation this year or down a little bit. You’d look at what the farm was going to produce over time.”

 Investing is a long-term game. Historically, shares have been one of the better long-term investments, but because they regularly fluctuate in price, they are considered riskier. If you’re willing to play the long game and invest for five years or longer, you have time to ride those fluctuations and have a good chance of seeing your money grow.

4 Ignore daily market moves

“Don't watch the market closely”

Buffett doesn’t pay much attention to the daily ups and downs of the share market. He knows that when it comes to investing, we can be our own worst enemies. Many investment losses come from a mixture of impatience and impulsiveness - two very human conditions. Emotional factors like fear, greed, and overconfidence can wreak havoc on our portfolios. Investing might be the only time where it can pay to be lazy. Seriously. Let the market ride and stick to your guns.

5 Invest in yourself

"The most important investment you can make is in yourself."

Investing can be intimidating when you’re new to it, but beyond the jargon, it’s not as scary as it may seem. The great thing is that there’s a vast amount of easily accessible information, and plain English sites (Hatch has a great 10 day getting started e-course!), books, magazines, and podcasts to help you grow your investing game. Set aside some time today and Google some investing concepts like ‘dollar cost averaging’ and ‘buy and hold’. The more you invest in yourself, the better chance you’ll have of  making good decisions that match your investing goals.

Hatch welcomes Berkshire Hathaway

You can now own a slice of Warren Buffet's portfolio and tell your friends that you own the most expensive publicly traded stock of all time. Berkshire Hathaway (BRK.A) is the largest holding company in the world, owning (in their entirety) over 50 companies including Duracell, GEICO, and Dairy Queen. They also have large investments in the likes of Amazon, Apple, Bank of America, Coca-Cola, numerous major airlines - and many, many more.

Under Buffett’s management, the price for one Berkshire Hathaway share has skyrocketed from $70,000 to its current price of $325,000. BRK.A consistently outperforms the share market as a whole and has proven more resilient than the S&P 500 during recessions in the last 50 years, making it a go-to stock for many investors. And since Hatch offers fractional shares, you don’t need $325,000 to get your piece of the pie - you can buy however much you’re comfortable with and grow your investment over time.

Let’s resolve in 2020 to be a bit more like Buffett. Keep calm and invest on!

If you're interested in recently listed US IPOs, or accessing over 3000 other US-list shares easily and affordably, take a look at Hatch. 

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