Warren Buffett’s investing journey is legendary and turned the ‘Oracle of Omaha’ into one of the world’s richest billionaires.
But to achieve financial freedom today, investors only need to build a fraction of this treasure hoard. And by following in Buffett’s footsteps, even a modest £500 monthly investment is all that’s needed to build a seven-figure net worth. Here’s how.
Rather than chasing the latest trends or pursuing the biggest growth opportunities, Buffett chose a simpler path. He focused exclusively on finding the highest quality companies trading at a discount to their intrinsic value in industries he understood perfectly.
Even in boring sectors, tremendous buying opportunities can emerge for long-term investors who stay focused and patient while everyone else chases the hype in an attempt to get rich quick.
As Buffett puts it: “Time is the friend of the wonderful company, the enemy of the mediocre”. By investing in the boring businesses that possess a moat of durable competitive advantages that allow them to reinvest cash flows at high rates of return, the compounding process can be drastically accelerated.
This is how Buffett achieved a 19.8% average annualised return over the long run. By comparison, the S&P 500 has generated a long-term average total return of 10.6% a year – almost half.
In terms of money, investing £500 a month for 30 years at Buffett’s rate of return unlocks £10.9m of generational wealth versus the £1.3m achieved by the US stock market.
The billionaire investor has made plenty of massively successful investments over the course of his career, including in Coca-Cola and American Express. But another lesser-known victory is his investment in Moody’s (NYSE:MCO).
The company is a perfect example of Buffett’s moat-driven long-term strategy in action. The financial services company operates as a near-invisible duopoly, generating enormous cash flows from issuing credit ratings every time a government, company, or bank wants to borrow money by issuing bonds.
In other words, the company is a toll booth to the public debt markets that’s virtually unavoidable. Buffett recognised this unassailable advantage decades ago. And since he first inherited shares in October 2000 following a spin-off, his decision not to sell has delivered close to a 4,200% total return.
With that in mind, it’s no wonder his successor at Berkshire Hathaway, Greg Abel, has described Moody’s as a “forever” holding.
Today, Moody’s continues to rake in enormous credit rating fees. But the company has also diversified its revenue stream through data & risk analytics software solutions to generate even more predictable and recurring income.