Six years ago in November 2009, CNBC arranged an event in Columbia University called “Warren Buffett and Bill Gates: Keeping America Great”. The audience was made up of students and they were able to pose questions to Buffett and Gates. In the interview, Buffett made an interesting comment which caught my eye. He said: “It’s always interesting when Bill and I appear together, they don’t figure they can do what Bill does, but they know they can do what I do.” Although Buffett’s comment was meant to be a joke, there’s still some truth in it. Many people do…
Six years ago in November 2009, CNBC arranged an event in Columbia University called “Warren Buffett and Bill Gates: Keeping America Great”. The audience was made up of students and they were able to pose questions to Buffett and Gates.
In the interview, Buffett made an interesting comment which caught my eye. He said:
“It’s always interesting when Bill and I appear together, they don’t figure they can do what Bill does, but they know they can do what I do.”
Although Buffett’s comment was meant to be a joke, there’s still some truth in it.
Many people do not see themselves as being capable enough to achieve what Gates did, which is to create a company that produces software used by hundreds of millions of people. But, most feel that it is possible to learn how to invest as well as Buffett. Why is that the case?
To me, the answer can be broken down into three parts:
- Investing is an easy concept to understand. Investing entails buying a part of a company that you like at a price with a sufficient margin of safety to protect your capital. That’s a simple idea and so people assume that being a successful investor is easy.
- You do not need a huge amount of capital to start and no special skill or unique machine is required to help you in the job – in this way, investing is very different from say, trying to invent something or training to be a doctor. When Buffett amassed his first million, he was still working from home and mailing his own work-letters. The only equipment he needed for his job as a money manager is a typewriter and perhaps a simple calculator.
- Buffet’s a simple man; he drives his own car; and he loves hamburgers and drinks lots of Coca Cola (Cherry Coke is his favourite beverage). Such traits give the average man hope that he can be a great investor like Buffett too.
Yet, if investing is really that easy, why is there only one Buffett in the world? The path toward becoming the next Warren Buffett might be tougher than you think. It’s not insurmountable, but here is what you might need to do:
1. Read – fast
Buffett reads a lot, even when he’s already 84 years old today. He once commented that act of reading often (and a lot) is how knowledge compounds.
If we want to be a great investor, we need to know about how businesses work. For some perspective on how Buffett gained such knowledge, he read through the annual reports of all the companies he could get his hands on when he first started in the business.
In Singapore, there are more than 700 listed companies. If you read through five years’ worth of annual reports from each company, and each report is about 100 pages long, you’d need to read through 350,000 pages to accumulate knowledge about these firms.
2. Reinvest and resist
Then, you need to form your investment process and apply them in the market. As you see returns coming into your bank account, you need to constantly reinvest those proceeds in order for the magic of compounding to work in your favour.
Many people cannot go onto the next stage because once they see excess money in their bank account, the temptation is to enjoy that wealth. But here’s a sobering thought – $100 spent today can be worth more than $25,000 40 years later if it’s invested well and manages to earn 14% annual returns.
Even today, Buffett is still well-known for his thriftiness – and that is how his wealth can go on compounding.
The concept of investing is easy enough to learn. But, learning about investing is just one small part in becoming a great investor. Having the right mindset and discipline to maintain a habit of financial prudence, thrift, and lifelong learning is important as well.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any of the companies mentioned above.