No Savings at 40? I’d Use the Warren Buffett and Charlie Munger Method to Get Rich

Following Warren Buffett and Charlie Munger’s investment strategy could lead to high returns in the long run — even from a standing start aged 40.

Warren Buffett and Charlie Munger are two of the most successful investors of all time. Together, they have turned Berkshire Hathaway into one of the most valuable companies in the world.

Interestingly, they have achieved this goal through a relatively simple investment strategy that can be replicated by almost any investor.

In fact, through focusing on value opportunities and investing for the long term, it is possible to build a surprisingly large retirement portfolio – even from having no savings at age 40.

Warren Buffett and Charlie Munger’s value investing approach

Warren Buffett and Charlie Munger seek to buy high-quality companies when they trade at fair prices. As such, they do not necessarily purchase the cheapest shares that are available at any point in time. Nor are they willing to pay a high price for even the most attractive businesses. Rather, they aim to identify companies that have a competitive advantage versus sector peers and purchase them when their share price trades at a discount to intrinsic value.

Clearly, determining a company’s intrinsic value, or real worth, is very subjective. So, too, is deciding whether a company is high quality or not. However, through assessing a specific sector and building up knowledge about the companies that operate within it, it is possible to identify the most attractive stocks. Waiting for buying opportunities can be tough, but profitable, in the long run as they deliver capital growth from a low share price.

In today’s market, a number of strong businesses appear to trade at attractive prices after the 2020 stock market crash. As such, there may be opportunities for investors to follow Warren Buffett and Charlie Munger’s strategy to generate high returns in the long run.

A long-term approach to investing

Of course, Warren Buffett and Charlie Munger have built Berkshire Hathaway to its current size over many decades. They have relied on compounding to turn attractive returns into a vast portfolio. They have also been able to overcome various market declines simply by adopting a buy-and-hold strategy.

An investor aged 40 is likely to have sufficient time to do likewise. Certainly, they may not end up with a portfolio valued in the billions. However, even obtaining a similar return to that of indices such as the S&P 500 or FTSE 100 can turn a modest investment into a large sum. For example, assuming an 8% annual return over a 25-year time period would mean a total return of around 600%.

Therefore, investing today using a similar approach to that followed by Warren Buffett and Charlie Munger could be a sound move. It may enable an investor to turn a modest initial investment into a surprisingly large portfolio so that they can enjoy greater financial freedom in older age.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares) and long January 2021 $200 calls on Berkshire Hathaway (B shares). Fool contributor Peter Stephens has no position in the companies mentioned.

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