Warren Buffett is more than just a big name in the investing world — he’s a legend. With a net worth of around $145 billion, people are all ears when he’s speaking about business or money matters.
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From picking small companies to not sweating it when your stock drops, here’s Buffett’s advice for investing $10,000 if you want to get rich.
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First and foremost, Buffett recommends getting started early when it comes to investing to take advantage of the power of compound interest. He describes the power of compound interest as building a little snowball and rolling it down a very long hill. As the snowball rolls down the hill, it collects more and more snow until it becomes a huge snowball.
At an annual shareholders’ meeting, when someone asked him how they could make billions of dollars, Buffett said, “The trick is to have a very long hill, which means either starting very young or living… to be very old.”
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Buffett recommends investing in small companies. Large investors — like Buffett — and funds tend to place focus on larger companies, which means small business stocks will have less competition, allowing someone with $10,000 to find some hidden gems.
Nevertheless, Buffett said the only way to multiply your money is to buy into good businesses by buying pieces of them — aka stocks — at attractive prices.
Buffett said if he was just getting out of school and had $10,000 to invest, he’d begin by looking at companies that have names that start with “A” and continue down the list, focusing on smaller companies to find the ones he wanted to invest in.
“If you’re going to do dumb things because your stock goes down, then you shouldn’t own stock at all,” said Buffett in an interview with CNBC. Dumb things, he clarified, are selling your stock just because the price goes down.
Buffett said that it’s inevitable that your stock will go down sometime, so why worry about it. “The point is to buy something you like, at a price you like, and then hold it for 20 years,” he said.
Buffett said you shouldn’t look at your stocks day to day. “If you bought a farm or an apartment house, you wouldn’t get a quote on it every day or every week or every month,” he said. “So it’s a terrible mistake to think of stocks as something that bob up and down and that you should pay attention to those bobs up and down.”
