Warren Buffett is the worlds best investor alive today, and with a fortune of $80bn, hes the worlds third richest man.
The Oracle of Ohama built his massive fortune investing in some of the worlds largest and most successful companies. While these investments have created a tremendous amountof wealth for the billionaire, Buffett would be nowhere near as successful as he is today if he hadnt followed three fundamental investment rules during his career.
Rule number one: Save your money
Buffett has always had a knack for saving and investing. He started his first business at age sixselling Juicy Fruit chewing gum packs. Saving profits from this business, he was able to expand into selling Coca-Cola fromhis grandfathers grocery store.
Over the years profits from this business grew, and at age 11 he brought his first shares. He acquired six shares of Cities Service, at $36 each for atotal investment of $216 or $3,700 in todays money.
Buffetts job as a teenager was delivering newspapers. Here he devised a way to deliver the most papers in the shortest possible time and trade routes with other delivery boys. From this job, he saved$1,200 ($25,600 today) to buy 40 acres of farmland in Omaha, Nebraska.
In just nine years Buffett, who started with nothing, saved more than $25,600 before his 16th birthday. The rest, as they say, is history.
Rule number two: Compound
Saving isnt enough on its own. To be able to achieve the best returns on your cash, you have to be able to compound your money at a suitable rate.
The power of compounding should not be understated. Buffett is obsessed with this mathematicalprinciple.
For example, if you save 100 a month, or 1,200 a year and receiveno interest, or return on your money from investments, youll have 12,000 at the end of a decade (excluding the impact of inflation). If you invest this cash at 5% per annum, you will have 15,550 at the end of the period. If you earn 10% per annum, youll have 20,400. And if you make 20%, youll end up with 36,300 three times more than the initialfigure.
Buffett has been able to successfully compound his wealth at a rate of 20% or more for around eight decades. If you could replicate this performance, that simple 100 monthly deposit would grow to be worth 26.6bn.
Rule number three: Dont lose money
Its all very well saving and compounding, but all this hard work will come undone if you end up losing everything. This is where Buffett really stands out.
Over the years, he has made very few bad investments, and those that have gone against him, haventcost him that much. Avoiding losing investments has helped him compound at a faster rate and ensure that any savings are reinvestedwith the best possible return, not used to fill a hole caused by a loss.
You can replicate this strategy by buying only safe investments. Stocks where the risk of permanent capital impairment is low, rather than, for instance, high-risk, high-reward mining stocks.
Follow these three key rules
If you follow these three key Buffett rules, you should have no problem growing your wealth and hitting your savings target.
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