Most people know Warren Buffett as one of the world's greatest investors.
But very few everyday investors actually follow the golden rule he credits for almost all of his success. A rule so boring and so uncomplicated, but so quietly powerful that most people overlook it.
Meanwhile, Buffett quietly turned a small investment partnership in the 1950s into a fortune worth an estimated US$160 billion.
Image source: Getty Images
What is Warren Buffett's rule?
The rule is very simple. Buy great businesses and hold them for as long as humanly possible.
This may sound obvious. But many investors don't actually do it. And that is why so few achieve Buffett-like results.
Let's break down what this looks like in practice, and how you can use this mindset to build wealth on the ASX.
Be patient
Buffett's entire strategy boils down to patience, not prediction
Many investors spend their time trying to guess what the market will do next. Buffett doesn't. He once said:
The stock market is designed to transfer money from the active to the patient.
His edge wasn't timing. It wasn't trading. Nor was it chasing hot ideas. It was identifying businesses he understood and holding them long enough for compounding to take over.
That's why he avoided speculation and focused on companies with durable advantages.
If you were to apply that to the ASX, the equivalents might be global compounder ResMed Inc. (ASX: RMD), tech leader TechnologyOne Ltd (ASX: TNE), and long-term growth machine Goodman Group (ASX: GMG).
These aren't get-rich-quick stocks. They're get-rich-slow stocks. Exactly the kind Buffett prefers.
Why this works
The biggest problem most investors face is impatience. They sell too early. They panic on dips. They move from one idea to the next. Buffett does none of that.
When Buffett buys a company, he asks a simple question: would I be happy owning this business if the stock market shut down for 10 years?
Imagine applying that question to your own portfolio. Suddenly, the noise disappears. Headlines stop mattering. Instead, the focus shifts to businesses with real earnings power, strong competitive moats, recurring revenue, and positive long-term outlooks.
Companies like Xero Ltd (ASX: XRO) and Life360 Inc. (ASX: 360) arguably fit this mould. They are global platforms with sticky customers and massive addressable markets.
But it doesn't have to be stocks. Buffett has openly said that if he were starting today with a small amount of money, he would simply buy an S&P 500 index fund, like the iShares S&P 500 ETF (ASX: IVV), and hold it forever.
Foolish takeaway
Buffett's rule is simple: buy great businesses, ignore the noise, and hold them for decades. Most investors never do it, and that's why most investors never achieve Buffett-like returns.
The good news? There's nothing stopping you from following in his footsteps.
