Warren Buffett may well be the most successful investor of all time. He became a billionaire in the 1980s and his stewardship of Berkshire Hathaway has seen the company’s A-shares reach a value of over $400,000. What can we learn from him? Well, lots actually. Over the years, through interviews, books, and letters, Buffett has given a detailed account of how he makes the sorts of investments that reap double or even triple digit returns. Here are some of his tips I’m using to help build passive income for my own portfolio.
Fundamentals, not share price
Warren Buffett always stresses the importance of the business fundamentals. For the most part, watching a stock go up and down is stressful, exhausting, and unhelpful. Many new investors make the mistake of buying when the price goes up and selling in a panic when it goes down. But so many factors effect share prices in the short term. Not only is it impossible to predict these swings, but often they tell us nothing about the health of a company.
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If, however, an investor familiarises themselves with how much debt a company has, how much cash it has on hand, and if it turns a steady profit, they will be in a much better position to know if the company is healthy or not.
How does this apply to passive income? If a company pays a dividend (a portion of profits allocated to shareholders) it’s important to know if the amount it pays is affordable. Will paying dividends today hurt the company in the long run? You don’t need to be a genius to read a company’s financial statement, and it helps us choose which companies are worth investing in.
Invest in what you understand
The next most important tip is understanding what you are investing in. Buffett has often …….
Source: https://www.fool.co.uk/2021/12/08/warren-buffett-investing-tips-im-using-to-build-passive-income/
