Warren Buffett

The Motley Fool

Compound dividends now for the future.
Not only does Buffett own a lot of shares, his company Berkshire Hathaway owns stakes in a wide variety of businesses. Berkshire throws off a lot of spare cash each year, yet it does not pay a dividend. Why?

Buffett prefers to reinvest the money in building Berkshire, for example by buying more businesses’ shares.

Berkshire Hathaway’s Warren Buffett Offers Advice to Investors: Patience and Long-Term Gains Over Pundit Predictions

As a small private investor, I can do the same thing to try and build my passive income streams. Rather than taking out dividends as cash, I can simply reinvest them in more shares.

In the short term, that means I would not see the dividends hitting my bank account as cash. Over the longer term though, it could enable me to build my share portfolio even if I did not put in any more money myself. That could hopefully enable me to earn more passive income in future.

Admit mistakes
Buffett has made some great investing decisions. But he has also made ones that turned to be very expensive mistakes. An example was the Tesco stake he built then sold at a large loss around a decade ago.

Sometimes, when owning a share that has generated substantial passive income in the past, it can be difficult to recognise that the business is changing and is unlikely to be as lucrative in future. But dividends are never guaranteed and past performance is not necessarily an indication of what will come in future.

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Rule 2 of 2.

If a Trust drastically alters its dividend policy it must be sold even at a loss.