Warren Buffett: This Factor Matters Most To Investment Success

Warren Buffett, the iconic multi-billionaire, is known for a lot of things. His folksy media appearances, simple taste in food (cherry Cokes are a favorite) and an absolutely mind-boggling ability to pick winning stocks.

For decades, his investments through Berkshire Hathaway handily beat the stock market. He recently turned 90 and reflected on a simple factor that he believes explains most of his financial success — time.

Talking with Jason Zweig at The Wall Street Journal, Buffett extolled the virtues of what he called “the Methuselah technique.” Simply put, make a reasonably good return over a long period of time.

The reason this technique works is because the value of investments compound.

Buffett likens it to rolling a snowball down a hill, a metaphor that became the title of his bestselling biography by Alice Schroeder, The Snowball: Warren Buffett and the Business of Life.

Applying this idea to your own investments is both easy and maddeningly difficult. Mostly, it requires you to do less, not more, when it comes to investing.

Ballooning billions

That’s really contrary to what the financial media would have you believe. Most of the “money shows” are about constant movement and trading, trying to guess the trends in the market over hours and days, rather than being content with the returns over years and decades.

Now, Buffett is a talented stock picker. But his larger point about time is incredibly important. As Zweig notes, Buffett has been investing since he was a teen, yet around 90% of his wealth was made after the age of 65.

It was in the third quarter of his life (he’s 90, so 65 to him is a while back) that Buffett’s wealth ballooned into billions. Did he get better at picking stocks at 65? Did the markets hand him a fluke win?

Of course not. It was the snowball effect in action. The size of the Berkshire Hathaway portfolio inevitably became larger over time as gains, dividends and interest were reinvested over and over.

In fact, Buffett himself would tell you he’s an outlier. The vast majority of investors, even the professionals, simply cannot beat the index and especially after you subtract fees.

Rather, Buffett counsels, focus on lowering cost, being diversified and getting a good, steady return by using an index fund. Marry that strategy to time and you cannot help but come out way ahead in finance and, as he would put it, in life itself.

MarketRiders, Inc. is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.