Imagine what $1 million could do for you and your future. If you're anything like me, it's a lot. However, for billionaire Warren Buffett, $1 million is likely pocket change.
The investing great currently boasts a net worth of more than US$110 billion, and he built the most of it by buying and holding shares.
In fact, Buffett's company, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) reportedly returned 20% on average between 1965 and 2019.
Fortunately for us, Buffett has freely given his investing advice over the years. Here are three key lessons I'll be taking into 2023 in my aim to build a $1 million portfolio of ASX shares.
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3 pieces of Buffett advice I'll be using in 2023
Buy ASX shares I understand and believe in
The first Buffett tip I'll be following in 2023 is only invest in a business you appreciate and truly believe will succeed in the future. There are two quotes from the billionaire that speak to this idea:
#1: Investment must be rational; if you can't understand it, don't do it.
#2: Risk comes from not knowing what you're doing.
There are hundreds of business models among the 2,000 companies listed on the ASX. It's entirely unlikely that any single person could learn the intricacies of them all.
That's why I plan to focus on what I truly know to build my portfolio. Personally, I'll spend the most time looking at shares in retailers and real estate investment trusts (RIETs) this year. Though, I will work to diversify my investments as well.
Focus on valuations
Secondly, the billionaire famously said:
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Once Buffett identifies a share he believes is a good buy, he doesn't go out and snap it up straight away. The investing great first determines if it's trading at a good price.
In doing so, he looks at whether the company offers a 'moat' – or competitive advantages over peers – to protect against hard times.
Be consistent like Buffett
Finally, I believe consistency will be the key to growing my portfolio to $1 million, starting in 2023.
That means consistently setting aside funds to invest, consistently buying shares offering the above qualities, and consistently reinvesting any dividends I might receive, no matter what the market might do.
By reinvesting dividends, I can compound my investments, thereby growing my portfolio without forking out extra cash. And the first rule of compounding is, according to Berkshire vice chair Charlie Munger:
Never interrupt it unnecessarily.
After all, Buffett is well known for not making investment decisions based on what's happening or might happen, with the broader market.
