Warren Buffett is one of the world's best investors and he's given out a number of great pearls of wisdom. I'm using some of his investment methods to try to grow my wealth and passive income for retirement.
Funnily enough, Buffett doesn't seem interested in retiring himself – he's still going at more than 90 years of age, being a figurehead for his Berkshire Hathaway business.
I'm not thinking about working at 90, though I do want to build a portfolio over the long term that can generate good investment returns and specifically pay a pleasing, growing stream of dividends to my portfolio.
Warren Buffett investment method
One of the main pieces of Buffett's advice that I try to live by with my investing is being fearful when the market is being greedy and greedy when others are fearful.
I wasn't necessarily feeling fearful during 2021, but I was careful about some sectors. When bear markets do come along, like the last year or two, I like to load up on ASX shares to boost my passive income for retirement.
I get excited when shares fall by 20% or more because there are plenty of times when the market is thinking about the short-term too much, giving us an opportunity to invest at a much cheaper price.
Another of his quotes that I like is about hamburgers:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
Stock market declines can be the best time to be able to invest at great prices.
How this can help passive income for retirement
Imagine there's a business that has a 5% dividend yield before a crash. If the share price of that business falls 10% then the dividend yield would become 5.5%. A 20% fall would turn into a 6% dividend yield.
Sometimes a business can cut its payout to shareholders, which is why I like to try to identify businesses that can usually grow their earnings over time and fund larger payouts.
An ASX dividend share isn't necessarily a buy just because it has fallen, but I'm picking them because I think they're good value.
One of the latest S&P/ASX 300 Index (ASX: XKO) shares I bought was Rural Funds Group (ASX: RFF) shares, a farmland real estate investment trust (REIT) that is paying a steady quarterly distribution to investors. I bought some shares after it had fallen 45% from the January 2022 high, giving me a yield of 6.6%.
There are other ASX 300 shares that I like to top up on when they have fallen and when they look good value, such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW) and Fortescue Metals Group Ltd (ASX: FMG). They are among my biggest ASX share positions for passive income for retirement. I think Soul Pattinson and Brickworks could be the sorts of names that Warren Buffett likes.
Soul Pattinson has grown its dividend every year since 2000, Brickworks hasn't cut its dividend for close to 50 years and Fortescue typically pays a large dividend yield (though the dividend payout can be volatile).
