In a world filled with market predictions, Reddit groups, and economic headlines, the idea of buying high-quality ASX shares and holding them for years can feel outdated. Yet time and again, this approach has proven remarkably effective for patient investors.

At its core, buy and hold investing is not about ignoring reality or pretending markets never fall. It is about recognising that wealth is usually built by owning great businesses for long periods, not by trying to outsmart the market every few months.

Why buy and hold investing ASX shares works

The power of buy and hold investing comes from compounding.

When a company grows its earnings year after year, and reinvests those earnings, shareholders benefit in two ways. The value of the business increases over time, and dividends or retained profits are reinvested to fuel further growth.

Trying to trade in and out of the market often interrupts this process. It introduces timing risk, higher brokerage costs, and emotional decision-making. In contrast, buy and hold investors give compounding the time it needs to work its magic.

This is why legendary investors like Warren Buffett have long emphasised patience over prediction.

And you only need to look at his wealth generation over the past few decades to see that it works.

What makes a good buy and hold investment?

Not every ASX share is suitable for a buy and hold strategy. The strongest long-term candidates tend to share a few key traits.

They operate in markets with long-term demand rather than short-lived trends. They have competitive advantages that make them hard to replace. And they are run by management teams that allocate capital sensibly.

Importantly, buy and hold does not mean buy anything and forget about it. It means buying businesses you would be comfortable owning through economic cycles, industry shifts, and periods of market volatility. You only sell if the investment thesis is broken.

Examples

The Australian share market offers several examples of businesses that have rewarded long-term investors over decades.

One is CSL Ltd (ASX: CSL). Through consistent investment in research, global expansion, and operational excellence, CSL has grown into a world leader in plasma therapies. Short-term setbacks have come and gone, but the long-term growth story has remained intact.

Another is REA Group Ltd (ASX: REA). Its dominant realestate.com.au platform position and pricing power have allowed it to grow earnings at a strong rate for over two decades, despite periodic property downturns.

Then there is TechnologyOne Ltd (ASX: TNE). By focusing on mission-critical software, recurring revenue, and steady product innovation, it has delivered decades of growth without needing to chase hype.

In each case, investors who held through volatility were rewarded far more than those who tried to time the perfect entry or exit.

Foolish takeaway

Buy and hold investing will never make headlines or deliver overnight riches.

But for investors willing to focus on quality, stay patient, and let time work in their favour, it remains one of the most reliable paths to long-term wealth.

The post The simple buy and hold investing lesson that still works with ASX shares today appeared first on The Motley Fool Australia.

But don't worry if that's the case because history shows that it's possible to build a meaningful nest egg by following in the footsteps of Warren Buffett. Even when starting from zero.

Especially if you follow the Oracle of Omaha's "golden rule" of investing.

What is Warren Buffett's golden rule?

The legendary investor's golden rule is very simple. The Berkshire Hathaway (NYSE: BRK.B) leader famously remarked:

Rule No. 1: Never lose money.

And to highlight just how important this rule is for investing, Buffett then adds:

Rule No. 2: Never forget Rule No. 1.

You might now be thinking that this golden rule isn't very helpful because it's so obvious and simple. But there's actually more to it that first meets the eye.

That's because when investing in ASX shares, it can be very tempting to chase big gains by investing in companies that people on message boards or Reddit (NYSE: RDDT) groups are touting as the next big thing and a way to get rich quickly.

Time and time again investors get sucked into these types of investments. And time and time again they will destroy significant wealth buying these highly speculative ASX shares.

You only need to look at companies like Brainchip Holdings Ltd (ASX: BRN) and Weebit Nano Ltd (ASX: WBT) to see this. Both of these semiconductor companies are attempting to compete with giants such as US$3 trillion Nvidia (NASDAQ: NVDA) in the chip market with comparatively minuscule budgets.

And so far, based on their insignificant revenue generation, they look unlikely to deliver on the grandiose goals that stock spruikers are saying is possible.

This has led to their shares losing approximately 50% and 65% of their value, respectively, over the last 12 months (and significantly more from their highs).

Why it's important not to lose money

If you lose money, you have an uphill battle to get even again and then to compound your way to significant wealth.

For example, let's imagine you make a single $20,000 investment into a balance portfolio of high quality ASX shares. If you can generate an average annual return of 10% for the next 30 years, you would end up with a portfolio valued at approximately $350,000.

Now imagine that you start with a $20,000 investment but lose 65% during your first year. At the beginning of year two you will have $7,000. If you now compound this amount for 29 years at 10% per annum, you would end up with an investment portfolio valued at approximately $111,000.

This means that the one gamble you took on a speculative ASX share in the first year has cost you $239,000.

How to grow your wealth

Instead of putting all your money on a speculative ASX share, investors might want to consider putting what they can into a balanced portfolio of high quality shares that have strong business models and sustainable competitive advantages.

This approach has served Buffett well over the years and there's nothing to say that it won't serve you equally well.

If you can do this with $500 a month, even starting from zero you would have a nest egg of $1 million in 30 years if you achieve a 10% per annum return. That return is of course not guaranteed but is in line with historical averages. So, it certainly is something to aim for.

Final thoughts

Overall, I think this shows the importance of not losing money recklessly with ASX shares.

Instead, investors ought to consider investing in quality, profitable companies that have sustainable competitive advantages and positive outlooks.

Resist temptation and grow your wealth slowly like Warren Buffett.

The post With nothing in my savings account, I'd use Warren Buffett's golden rule to build wealth appeared first on The Motley Fool Australia.

This social media platform allows users to discuss topics of almost anything you can think of such as TV shows, the news, jokes, sports, personal finance and ask-me-anything Q&As.   

It's been a while since a large social media business listed on the stock market. The rising interest rate environment put a dampener on large initial public offerings (IPOs) in the US and Australia.

But, could Reddit's stock success spur a new wave of listings?

Tapping into AI excitement

According to reporting by Reuters, Reddit recently signed a content licensing deal with Alphabet's Google worth around $60 million per year. Reddit is making its content available for Google to train its artificial intelligence models.

However, Reddit still makes most of its revenue from advertising, which is a competitive area.

While the IPO was priced at US$34 per share, it finished the day's trading at $50.44, which was a rise of just over 48%.

The chief operations officer from Reddit, Jen Wong, said:

At the core we are a growth company. Achieving our mission means that we want to grow users and community.

While Reddit has a large social presence and is a core digital destination where lots of people spend time on the internet, its valuation is only several billion US dollars, compared to more than US$1 trillion for Meta Platforms. Reddit has a lot of work to do to make a sizeable profit.

Can this excite the local ASX IPO market?

Reddit doesn't get as much visitation as Facebook, YouTube, Instagram, TikTok or a few others, but it's still one of the most visited digital sites, reportedly just behind LinkedIn in terms of where US social media users go, according to Statista.

There are currently only five ASX IPO listings planned at the moment – they are all small, with raisings of between $5 million to $10 million planned.

However, we should also remember that Chemist Warehouse is planning a reverse listing via Sigma Healthcare Ltd (ASX: SIG).

I don't have any inside information about which businesses are planning to list next, but I think Reddit's success and the ongoing strength of the overall ASX share market are very positive for potential listings.

I'm not sure the ASX will be able to attract the likes of Canva, but the foundations are there for smaller businesses to want to take advantage of the desire of investors for growing businesses.

While I wouldn't necessarily be interested in tiny, speculative, exploration ASX mining shares or small ASX biotech shares, there can be merit in looking at growing companies with smaller market capitalisations. They are earlier on in their growth journeys and could deliver stronger long-term returns.

Of course, there are lots of potential great growth opportunities already on the ASX.

The post Reddit stock soars 48% on debut! Will the ASX IPO market heat up again? appeared first on The Motley Fool Australia.