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The Investing Strategy that Made Warren Buffett a Millionaire at Age 30

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Warren Buffett became a millionaire at his 30s and a billionaire at his 50s. 

Warren Buffett's investing records

In today's #AskDrWealth, we'll reveal how Warren Buffett invested to make his first million by 30.

Why You Cannot Invest Like Today's Warren Buffett

Few people know that Warren Buffett became a millionaire at the young age of 30 years old and later became a billionaire in his 50s.

Because of this, many investors want to emulate his investing strategies.

But! There is a difference between his CURRENT investment strategy compared to the strategy that made him a millionaire.

I would urge you to follow Buffett’s millionaire investment strategy rather than his current billionaire strategy.

And today, I'll break down his millionaire strategy:

The Millionaire Strategy As Taught By Warren Buffett's Shifu, Benjamin Graham

What Warren Buffett did to get his first million was invest using a strategy called the “Net Net strategy”.

He picked up this strategy from his teacher, Benjamin Graham.

The Net Net Strategy

net-net-strategy-formula

If a stock price is less than 2/3 of the difference of its current assets and liabilities, it is a Net Net stock.

Using the 'Net Net' strategy, you can invest in any stock as long as the above is true.

This means that you do NOT have to analyse

  • fundamentals 
  • financials
  • or making any qualitative assessment

You can make an investment decision based off just 1 formula!

Why Buffett Swears By This Strategy

Warren Buffett made many of his early and highly successful investments using the Net Net strategy. 

This is what he says about it:

A cigar butt found on the street that has only one puff left in it may not offer much of a smoke but the bargain purchase will make that puff all profit.

Warren Buffett

He points out that "cigar butt" stocks are not sexy nor glamorous, hence most people avoid them. These stocks are very unloved and unfamiliar to most people and may even have problems like going into bankruptcy.

However, because the share price is selling at such a ridiculously cheap price, you will still be able to buy it at a fraction of its entire net worth!

They tend to be so cheap, even when the entire company goes into liquidation, you are still able to make a profit out of it.

If it's so good, why did Buffett stop using the strategy?

Short answer: He became the victim of his own success.

Warren Buffett made his millions with this strategy. Soon, millions grew into billions and then he hit a wall...

He had too much capital, that he could not buy all these small companies anymore 🙁

In the 1999 BusinessWeek interview, he mentioned how he used to invest in 'mosquito' stocks (aka small-capped stocks) and eventually has to invest in big 'elephant' stocks because his capital grew so much.

Our Advantage Over Warren Buffett

Just think about it!

Warren Buffett can no longer grow his money fast because he outgrew his strategy. This means...the best player is out of the game. 

Small, retail investors like us don't have to deal with 'having too much capital'. Hence, we are in the best position to exploit the Net Net strategy.

Buffett himself recommends that people should start with the 'mosquito' stocks.

He said in an interview that if he had $1 million, he would invest in 'mosquito' stocks—the small cap, the Net Net and unsexy ones, and the cigar butts.

What he says next might sound arrogant, but hey, he is a billionaire investor...

Buffett mentioned in the same interview that he would be confident to achieve a 50% per annum return - guaranteed.

How To Really Invest Like Warren Buffett

There are too many literature, videos, etc on The Warren Buffett's way of investing.

Ultimately, I believe that for most investors, it would make more sense to follow what Warren Buffett did during his younger days with smaller capital.

Why bother limiting your choices, and increasing your risks by copying Warren Buffett's strategy at his current billionaire status? Plus, he has advantages that we regular people have NO access to.

As an individual, there is no need to restrict yourself in that way.

Hopefully, you are able to get some ideas on how you can improve your investments.

***

Leave a comment below and let me know if you have any investing questions! I might just do a video for you 🙂

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Co-Founder. Believer of the Factor-based Investing approach. Running a Multi-Factor Portfolio that taps on the Value, Size, Profitability and Momentum Factors. Quant at heart. Believe the financial industry can treat their customers better. Wants to change the world.
  • Net-net stock strategy uses Current Assets but your CNAV strategy rely on mostly on Non-current Assets with Cash. Both strategies are focused on margin-of-safety and profit from surpressed share price to its NCAV/CNAV. What is your take on using Current Assets as compared to Non-current assets?

    • Net net stocks are a lot harder to buy due to the myriad problems. Easy to say but hard to do. Some may even be burning cash and have be near the end of their business. CNAV on the other hand have fewer problems and it isn’t wrong to use high value assets like properties in Singapore. The properties are really worth a lot more and have stability or even appreciation. They are also easier to accept as compared to Net Net. Either way works.

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