Warren Buffett's Two Words Success Secret
Warren Buffett is always in the news. This ultra successful investor is one of the wealthiest men on earth. He earned his wealth by investing in the stock market.
If you are like most investors, you wonder how stock market players like Buffett have become super rich by investing in stocks.
Buffett and others like him make it appear very easy to build wealth in the stock market. However, most stock market investors encounter tremendous difficulty becoming rich from the stock market.
The million dollar questions are.
What does Buffett know?
Does he know hidden stock market secrets?
Is he gifted with a supernatural stock picking ability?
Well, truth be told, there are no secrets to stock market success.
Buffett and other truly successful investors simply understand how the stock market really works.
This is the dividing line between success and failure in the investing game.
I can hear you now.
Understanding how the stock market really works must be extremely difficult.
The good news is.
Nothing could be further from the truth.
In fact, the key to stock market wealth can be boiled down to just two words. Buffett and the other ultra wealthy investors live by these two words with every investment they make.
The two words are dividends and value
No matter how little or how much money you have to invest, you can invest just like the ultra rich by following the principals behind those two words.
Let’s take a closer look at these two primary key words to stock market success.
Dividends are the central way flourishing companies return cash to shareholders.
Believe it or not an astounding 42% of all stock market gains, over the last 80 years, can be attributed to dividends.
Think about this for a second!
It means that the major stock market averages like the S&P 500 and Dow Jones Industrials would be close to 50% lower today if not for the power of dividends.
This is truly amazing!
Most investors don’t even know this basic fact.
Many investors believe that dividends are slow and boring.
This belief is the truth. Dividends are slow and lack the excitement of nailing a hot stock at the right time.
The fact is, in the pursuit of stock market wealth, slow and boring beats fast and exciting nearly every time.
The investing turtle always beats the hare over the long term.
Building a portfolio of consistent dividend paying stocks is the first step to stock market success.
Next, relentlessly reinvesting the dividend payments back into the purchase of additional shares takes advantage of an extremely powerful wealth building force.
Albert Einstein is said to have called this power “the most powerful force on earth.”
I am talking about compound interest. Compound interest is the earning of interest on interest. This is how great wealth is automatically built in the stock market.
Dividend reinvestment places the power of compound interest on your side.
Forcing compound interest work for you, rather than against you via dividends is the first key to stock market success.
Value is a word that is quite popular.
Everyone wants to find value in whatever is purchased. Stock are no different for true value investors.
Value investing is Warren Buffett’s principal wealth building strategy.
It is far from exciting. The reality is that it is often quite boring. This is why average investors often shy away from value investing.
Just what is value investing?
Value investing is purchasing stocks at a discount.
This means locating and investing in shares trading for less than the intrinsic value of the company.
Stated simply, value stocks are under priced to the company’s true worth.
Think of it as buying discounted groceries.
It is really that simple!
Value investors screen the stock market for discounted value stocks.
Locating and building a diversified portfolio of value stocks is the second key to consistent stock market success.
Now you know Buffett's secret.
Building wealth in the stock market is a long, slow process.
However, great rewards await those who understand value and dividends.