‘Mr. Buffett, how can I make $30 billion?’: Warren Buffett revealed 3 simple investing rules he lives by

“Mr. Buffett, how do I make $30 billion?” he asked (1).

As always, the Oracle of Omaha conveyed complex answers in simple terms. Here are the three crucial rules that helped the 95-year-old accumulate a massive fortune.

Start young

Buffett’s best advice for investors is to get started as early as possible. He has a simple metaphor to explain his wealth-building strategy.

“We started with a little snowball on top of a very tall hill,” he said. “We started at a very early age in rolling the snowball down, and of course, the nature of compound interest is that it behaves like a snowball.”

The length of Buffett’s career is a key piece of his enormous wealth. He bought his first stock at the age of 11. He’s now 95 years old and still actively investing.

The majority of Buffett’s wealth was accumulated after he turned 65. In 1999, his net worth was just $30 billion. Today, he’s the 11th richest person in the world — with a net worth of $140.6 billion (2).

In other words, one of the keys to Buffett’s long-term success was investing early and often.

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Search for small companies

Buffett said that if he started investing again today with $10,000, he would focus on small businesses.

“I probably would be focusing on smaller companies because I would be working with smaller sums and there’s more chance that something is overlooked in that arena,” he said at the shareholder meeting.

In his early days, the billionaire investor focused on companies that would be considered small-caps. He bought a tiny furniture company in Nebraska in 1983 when it was still expanding across state lines. Before that, he acquired See’s Candies for $25 million when it had made just $4 million in annual profits in 1972.

By 2019, the company raked in $2 billion in pre-tax income for Berkshire Hathaway — an 8,000% return on investment (4).

These small businesses were overlooked, undervalued and had room to grow, which gave Buffett the chance to buy in early.

This trend continues today. Small-cap stocks were around 30% cheaper than large-cap stocks as of the start of the final quarter of 2023, according to an analysis by BNP Paribas (5). This valuation gap is near a 25-year low, suggesting the potential for small-cap outperformance as market conditions shift, based on a report by Royce Investment Partners (6).

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Buffett’s bet on See’s Candies generated a 160% per year ROI, but even he almost passed over the acquisition, thinking it was too expensive at the time.

“I almost blew the See’s purchase — the seller was asking $30 million, and I was

adamant about not going above $25 million. Fortunately, he caved,” Buffett wrote in Berkshire Hathaway’s 2007 annual shareholder letter (7). “Otherwise I would have balked, and that $1.35 billion would have gone to somebody else.”

Circle of competency

Thomas J. Watson Sr., the founder of IBM, once said, “I’m no genius. I’m smart in spots — but I stay around those spots,” and that’s the mantra Buffett applies when he’s investing (8).

Investing is risky, and Buffett has mitigated that risk by sticking to industries he understands. Much of his portfolio is focused on either consumer goods businesses or financial service companies. This disciplined approach helps him manage risk and make confident, long-term decisions.

Ordinary investors can similarly reduce risk by sticking to their circle of competency and avoiding speculation.

If you’re new to investing and your circle of competency is small, you might want to consider working with a dedicated financial advisor to increase your knowledge base.