How To Get Rich According To Warren Buffett
There are a million ways to make a million dollars. In this video, we're looking at one of them, and the main character in this video is the legendary Warren Buffett, who made his fortune of over 104 billion dollars by investing in the stock market. After decades of being successful, this is how you make money according to him: a series by alux.com.
"I bought my first stock in the spring of 1942. I was 11." So there's a reason why Warren Buffett repeats this in almost every interview he does. It's simply powerful. Investing as early as possible will put you ahead of 97 percent of people out there. This is possible because of what Wall Street people call the eighth wonder of the world: compound interest. They don't teach you about stuff like this in school, and the only trade-off you make when investing in your youth is you don't get to spend your hard-earned money on liabilities. But once you see the magic of compound interest, you'll understand the advantage of starting early.
Well, if you have to closely follow a company, you should have known it: getting literally glued to a screen, checking the price every hour or, in some extreme cases, every few minutes to see if they made a profit. If you've got doubts about your investments, maybe you shouldn't have made them in the first place. Good investments don't require constant maintenance; they do the heavy lifting for you over extended periods of time. It's all about understanding the fundamentals, and that's precisely what Warren Buffett focuses on.
The reason why 80 percent of Berkshire Hathaway's portfolio is made up of only a handful of companies that they've been holding on to, in some cases for decades. If you're wondering why you might encounter this tendency in your investment behavior, well, there are two reasons: you're either playing the short-term game, which is a loser's game according to Buffett, or you're not ready emotionally and psychologically to hold your investment.
"You don't want to get hung up on trying to make economic analysis because nobody's any good at: nobody. You don't get rich doing that." Now you might be tempted to try and pick the bottom and the top to maximize your profits, but that signals only one thing: that you don't understand how things work from a macro perspective.
The stock market is heavily influenced by what goes on in the global economy. Technology, politics, innovation, and supply chain issues all play a part, and the global economy is heavily influenced by things that we can't predict. This includes events like pandemics, wars, supply chain issues, and even ships getting stuck in canals. Only a fool will tell you that those things can be predicted entirely. The only way to pass calmly through the storm is to understand that eventually it will pass.
Warren Buffett has lived to see 14 presidents, seven wars, and all sorts of devastating macro events. Not even people like him, who are seasoned investors, can make such predictions in his life. His bet was on one single thing: that through all of the events, the U.S. will be victorious. As long as that remains true, his investments are going to be profitable. He understands that any attempt to predict such events and create an economic analysis based on that will only deviate from his long-term goals.
"The best single thing you could have done on March 11, 1942, when I bought my first stock, was just buy an index fund and never look at a headline. Never think about stocks anymore. Just like you would do if you bought a farm; you just buy the formula to let the tenant farmer run it for you."
"I pointed out that if you put ten thousand dollars in an index fund that reinvested in the dividends..." and I paused for a moment to let the audience try and guess how much it would amount to, and it would come to 51 million dollars. Now Warren Buffett also advises us not to get swayed by the daily ups and downs that media tends to emphasize.
"It's just noise. The media's job is to create sensational headlines to get you to click or tune in. They're not there to help you build wealth. The game is already hard; there's no reason to make it harder on yourself." As a matter of fact, "you should make it as easy as possible."
Okay, Buffett doesn't try to beat the market or YOLO in a particular stock. He plays it super safe. Within index funds, he's investing in the overall market and taking advantage of its long-term upward trend. He's even gone on record stating that he's instructed the trustee of his estate to invest 90 percent of his wealth into an S&P 500 Index Fund when he's no longer around. He believes in the long-term prosperity of American businesses, which many started to doubt lately.
"And just as a bonus point here, there are many actors who can influence the markets just by posting on social media platforms. The lower the market cap of a company, the easier it becomes for whales to sway the price action of a stock in their favor." Now, coming back to the low maintenance principle, an index fund like the S&P 500 can't be moved as easily because of its insanely high market cap and diversified structure.
Veterans who've invested in this index for decades know this better than most. By far, the best investment you can make is in yourself, and if you invest in yourself, nobody can take it away from you. Warren Buffett has consistently said the greatest investment a person can make is in themselves. He believes the more knowledge and skills you possess, the more valuable you become.
"Whether it's taking courses, reading books, learning new skills, or cultivating good habits, investing in oneself pays off in spades in the long run. These are assets that no one could ever take away from you." Also remember that health is wealth.
Look, speaking of investing in yourself, you can unlock your full potential with the Alux app. Discover a world of exclusive content, expert mentorship, and invaluable resources to level up your life. Start your journey today because the best investment you can make, like Buffett said, is in yourself. "Alexa, take the leap today and embark on a transformational path of growth. Go to alux.com/app and get started right away."
"I'm not recommending that people buy stocks today or tomorrow or next week or next month. I think it all depends on your circumstances. But you shouldn't buy stocks unless you expect, in my view, you expect to hold them for a very extended period, and you are prepared financially and psychologically to hold them, the same way you would hold a farm. Never look at a quote."
"And you know, people tend to undervalue patience, don't they? In the business of making money, having patience means letting go of the idea of making money." It sounds pretty counter-intuitive, which is why so many people have a problem with it. But if you focus on the money-making part, you lose focus of the thing that actually makes you money. Just like a farmer wouldn't plant seeds one day and dig them up to check the progress the next day, so should an investor avoid frequent checking or altering their investments.
The stock market is volatile in the short term, but in the long term, it has historically trended upwards. Buffett firmly believes in the principle of "buy and hold." He's been known for holding on to his investments for decades, and that's been the key factor in his incredible success. This requires a certain level of psychological toughness and short-term vision. It means not panicking when the market goes down and resisting the urge to sell.
"They think that because you can trade, you should trade. You buy a farm; you buy an apartment house. You can't resell it tomorrow. You know the cost of moving around earlier." Now you get something handed to you: liquidity, which is instant in the sell. Investing has never been easier.
And love them or hate them, platforms like Robinhood, for example, have made the stock market available to literally everyone. But at the same time, this gave birth to the Wall Street Bets and YOLO culture, which is more about instant gratification than investment. They encourage trading, getting-rich-quick exits, and reckless behavior. But just because you can trade doesn't mean you should. In fact, seasoned investors like Buffett advise against it.
That's because trading, often chasing the hottest stock or attempting to time the market, rarely results in long-term wealth creation. It actually leads to poor decision-making driven by emotions such as fear and greed, and fear and greed will diminish your wealth, not increase it. Investing and emotions are like oil and water; they simply don't mix.
Remember, the stock market can be a tool for wealth creation or a device for transferring money from the impatient to the patient. If you ban trading at Berkshire Hathaway for the next five years, our investors would do fine over time. But if you ban trading in tulip bulbs, or if you ban trading in some Bitcoin, which nobody knows exactly what it is—people would say, "Well, why in the world would I buy it?"
"You aren't investing when you do that; you're speculating. There's nothing wrong with if you want to gamble; somebody else will come along and pay more money tomorrow. That's one kind of game that is not investing."
Now investing, according to Buffett, involves putting money into a company with a strong business model and financials, with the expectation of compound returns over time. Simple but efficient. Speculating, on the other hand, is putting money into an asset hoping the price will go up quickly. It's more akin to gambling than investing. So Buffett warns against speculation because it doesn't create sustainable wealth.
"Short-term gains always involve higher risks, and there's always a bigger fish out there ready to swallow those who refuse to learn. There are no get rich quick schemes; that's just somebody else getting rich off of you."
"If I'm going to buy a half interest in the McDonald's stand and you're going to run it for McDonald's franchise, you're going to run it, I look to the business to determine whether I made a good investment."
"And I'm concerned about whether we have new competition out; we do over the years, but it's the business I look at. When you're just looking at the price of something, you're not investing." Buffett once famously said, "Price is what you pay; value is what you get."
Investing isn't about buying stocks that are cheap in price; it's about buying stocks that are undervalued. Big difference! Okay, it's about finding companies that are worth more than their current market price. And to find these companies, you have to dig into their financials, understand their business models, and assess their leadership and competitive advantage.
Again, it's important to not be swayed by price movements or market sentiment. So if you truly are serious about investing and you don't want to rely on a third party like an asset management fund to do that for you, you have to get good at finance. Okay? Luckily for you, we've got plenty of videos on this subject, so once you're done with this video, make sure to check them out.
When stocks go down, it's good news. Just like when hamburgers go down, it's good news or Coca-Cola goes down, it's good news. "It's anything I buy now." You might find this a bit counter-intuitive, but according to Buffett, a drop in stock prices is not a bad thing; it's a chance to buy more of the company you believe in at a discounted price.
Imagine your favorite item at the grocery store is on sale. You'd be excited about that, right? Well, then why not the same with stocks? Remember, investing is for the long term. The daily or even yearly price movements don't matter that much in the grand scheme of things. It's the long-term upward trend that you should care about, and for that, sometimes you've got to be a contrarian and go against the herd.
Remember, real money is made when there is, metaphorically speaking, blood on the streets. Otherwise, you're going to have exit liquidity for those who accumulated when others are fearful. Markets prey on those who can't control their emotions, so learn to master them if you want to build that generational wealth.
And there you have it, Aluxers. This is just one of the millions of ways to get rich we will explore in future entries of this series. Let us know your thoughts on these kinds of videos; we'd really appreciate your feedback. And as a thank you for sticking with us until the end, we'll leave you with a too long, haven't watched for the video: Buffett's strategy can be summarized down to this: be early, play the long game, and be safe.
You'll see that other high net worth individuals have different tactics, and you can learn a lot from this. We'll see you back here next time. Thanks for spending some time with us today, Aluxers. We're so glad you did. If you found value in today's video, please give us a like, hit that bell icon to never miss an upload, and hey, don't forget to subscribe!