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How to become a millionaire

Sir Richard Branson, founder of the Virgin Group empire, has a great anecdote for how to become a millionaire: “I’ve always said the easiest way to become a millionaire is to start out as a billionaire and then go into the airline business”.

One of the wonderful aspects of investing is that you can (sometimes) learn what not to do by observing the mistakes of other investors. This beats learning the lessons the hard way and losing your own money.

Sir Richard’s lesson is that the airline business is a very tough industry to make a profit in but an easy industry in which to lose money. It’s a real world example of the type of business to avoid and puts into practice one of Warren Buffett’s most famous quotes: “Rule number one: Don’t lose money. Rule number two: Don’t forget rule number one”.

So the first step to becoming a millionaire investor is to learn as quickly as possible how to avoid losing money.

The next step to becoming a millionaire is to invest successfully and compound your returns. There are actually many different approaches to building a portfolio to set you on your way to becoming a millionaire. You can focus on small-cap companies, run a very concentrated portfolio, build a diversified portfolio, research high growth and high quality companies, or buy beaten up businesses that have gotten very cheap to name just a few.

The key factor is that you have a clear and consistent process and that you always consider the share price of a company with reference to the value of that company. One strategy for building a portfolio that we are particularly keen on here at The Motley Fool is to invest alongside entrepreneurs who have built great and profitable businesses with strong moats.

Examples of some of these quality businesses include: Navitas (ASX: NVT), Reece (ASX: REH), Computershare (ASX: CPU), Platinum (ASX: PTA), and Cochlear (ASX: COH).

The Foolish bottom line

It is often said that investing is simple but not easy. If you focus on profitable businesses with high quality management, coupled with not paying too high a price for your investments, you could well be on your way to becoming a millionaire!

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Motley Fool contributor Tim McArthur doesn’t own any of the stocks mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

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