The National Lottery encapsulates a treasure trove of dreams for ordinary British citizens. It answers the get-rich-quick desires of everyone working in mundane conditions. I would even hazard a guess it is one of the most discussed topics during lunch breaks across the UK. This is because everyone loves to daydream about what they would spend their fortune on if they hit the jackpot.
What many dreamers fail to realise is that while the odds of winning the lottery are very slim, the odds of becoming rich and retiring early are not so farfetched. By following the tried and tested route to riches set out by billionaire investor Warren Buffett, many shareholders have achieved their dreams and then some. Building your wealth through your own knowledge and hard work, rather than simply a twist of fate, also comes with a sense of pride and accomplishment.
Warren Buffett’s value-investing approach Buffett based his value-investing strategy on that of his mentor, Benjamin Graham. I think some of the investment principles they adhere to are worth considering. Taking a dedicated approach to value-investing has the potential to provide for early retirement.
Although volatility is rife in current market conditions, this creates an opportunity to buy high-quality stocks at reasonable valuations. The principle of ensuring a margin of safety comes when you buy a stock priced below its intrinsic value. This means it looks like it has room for significant growth, and thus the ability to provide high return opportunities. But what to buy? Or what to avoid? A company saddled with debt cannot invest in growth. Therefore, it is important to avoid companies with too much debt.
Get rich with dividends Receiving a dividend and reinvesting is how investors get richer. The long-term benefit of this comes from the fact that compound interest can increase returns exponentially. However, this is not so easy in a pandemic-affected world as so many businesses have cancelled their dividends. I imagine those companies that can ride out the crisis will want to restore their dividends as soon as possible. It will be important to them to both attract and keep shareholders.
Dividends will return one day and private investors have the luxury the professionals do not…they can wait for that to happen. Overall, if you take a value-investing approach to your portfolio, it is important you take your time and get it right. Try to seek out companies that have previously shown strong performance and that you see achieving that kind of success again. This is not a get-rich-quick strategy that will have you rolling in millions by the end of the month. It is a slow and steady process that can reap substantial rewards for those with patience and dedication. Value-investing is not trading, and once you have bought shares in your chosen companies, you should intend to hold them for a minimum of five years.
I would prefer to get rich and retire early by following Warren Buffett’s road map to riches, than from buying a winning lottery ticket.
The post Forget the National Lottery: I’d get rich and retire early by following Warren Buffett appeared first on The Motley Fool UK.
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.
Motley Fool UK 2020