Warren Buffett has a simple solution that could help people turn $40 into $10 million. Warren Buffett spoke about one of favorite companies, Coca-Cola, and how to be patient reinvestment, someone who bought just $40 worth of the company’s stock when it went public in 1919 would now have more than $5 million.
The power of patience
I know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today’s money. Put differently, would you rather have an Xbox One, or almost $11 million?
But the thing is, it isn’t even as though an investment in Coca-Cola was a no-brainer at that point, or in the near century since then. And there have been countless other things over the past 100 years that would cause someone to question whether their money should be in stocks, much less one of a consumer-goods company like Coca-Cola.
The dangers of timing
Yet as Buffett has noted continually, it’s terribly dangerous to attempt to time the market:
“With a wonderful business, you can figure out what will happen; you can’t figure out when it will happen. You don’t want to focus on when, you want to focus on what. If you’re right about what, you don’t have to worry about when”
So often investors are told they must attempt to time the market, and begin investing when the market is on the rise, and sell when the market is falling.
This type of technical analysis of watching stock movements and buying based on how the prices fluctuate over 200-day moving averages or other seemingly arbitrary fluctuations often receives a lot of media attention, but it has been proved to simply be no better than random chance.
Investing for the long term
Individuals need to see that investing is not like placing a wager on the 49ers to cover the spread against the Cowboys, but instead it’s buying a tangible piece of a business.
It is absolutely important to understand the relative price you are paying for that business, but what isn’t important is attempting to understand whether you’re buying in at the “right time,” as that is so often just an arbitrary imagination.
In Buffett’s own words, “if you’re right about the business, you’ll make a lot of money,” so don’t bother about attempting to buy stocks based on how their stock charts have looked over the past 200 days. Instead always remember that “it’s far better to buy a wonderful company at a fair price.”
Fortunes, like Buffett’s, were made by early investors when internet technology changed our lives forever. Now there’s a new technological revolution that threatens to make intellectual property obsolete — and shake up the entire global economy. Investors once again have the opportunity to get rich by getting in early, and you can be one of them.