Warren Buffett, the 'Oracle of Omaha' and the man behind Berkshire Hathaway Inc (NYSE: BRK), is often heralded as the best investor of all time.
And if I were a few short decades from retirement with little to no cash in the bank, I'd turn to his wisdom to help grow wealth on the ASX.
The billionaire's company offered investors an annual return of around 20% between 1965 and 2021.
That would have turned a $1,000 investment into around $28.5 million over the 56-year period – the power of compounding, folks.
So, what advice has the apparent guru offered over the years that might help an investor build up a nest egg over the age of 40 (potentially using ASX shares)? Keep reading to find out.
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Buffett wisdom to help build wealth after 40
Choose wisely
A book could be written on how to pick a stock to invest in – and many have been. But Buffett's approach is a simple one.
He doesn't rush into any and all investments, rather he takes time to evaluate and understand a business and its prospects. That's how he finds the big winners.
Following that advice means an investor with no understanding of a particular sector or company would either need to get acquainted with it before buying in or staying clear.
Buffett is also said to have advised that someone looking to invest do so as if they could only make 20 investments in their lifetime.
Being selective about which shares he buys, and truly knowing the business behind it, is one way in which the billionaire has built his wealth.
Derisk, derisk, derisk
Buffett's relationship with risk is a complicated one. He once famously said:
We think diversification – as practiced generally – makes very little sense for anyone that knows what they're doing.
However, to diversify a portfolio is to reduce risk. That's because no one (or two, or three) ASX shares or sectors can be guaranteed to gain.
Buffett is also widely quoted as saying his first rule to investing is don't lose money. His second rule? Don't forget rule No. 1.
So, what Buffett might have meant, is to advise investors not to mindlessly build a huge portfolio purely to diversify. As noted above, the oracle advises people to invest wisely.
If I were aiming to build up my nest egg, beginning at 40, I would be deliberately and strategically (and reasonably) diversifying my ASX portfolio.
Time in the market > timing of the market
Buffett has previously said he doesn't put much thought into what the market is doing at any particular time.
Additionally, the power of Buffett's best friend, compounding, takes time.
Therefore, Buffett looks for businesses he believes to be winners and doesn't attempt to pick the bottom. He once said, courtesy of CNBC:
If we're right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do.
I believe waiting to buy into a good investment because of what the broader market is doing could delay future rewards.
