No savings after inflation? I can use Warren Buffett's method to build wealth

Warren Buffett is often considered one of the best investors alive today. And since it's currently sitting on a record for nearly 20% annual returns since the 1960s, I'd have to agree. While there are many factors behind Buffett's success, there are three specific strategies he uses that I believe can help investors improve their wealth. And that includes those whose savings have been reduced during this cost-of-living crisis.

1. Walk, don't run

Compounding is an amazing wealth building tool. But this snowball effect can take a very long time to develop, which is why starting the investment journey early in life can be so beneficial. However, that does not mean that investors should rush to make decisions.

Analyzing businesses takes time. Besides understanding how it makes money and the risks it faces, a detailed investigation of long-term opportunities, competition, and financial statements is essential. As it measures the fair price you have to pay.

This process can be tedious, especially when shares of a certain 'hot stock' are flying through the roof and everyone seems to be making a fortune. However, getting drawn into the hype without due diligence is often a very good way to lose money in the stock market.

2. Stick to the circle of knowledge

Buffett's portfolio consists of a diverse collection of companies. Yet for decades, there was a distinct lack of exposure to the technology sector. Considering it's been proven to be one of the highest-grossing industries since 2010, you've left a lot of money on the table.

But at the same time, avoid falling into many traps by not investing in businesses and sectors that you don't understand. This is where I made some of my biggest mistakes early in my investment journey over the past decade, including Superdry (now delisted), ValiRxagain QE (LSE:IQE). Let's move on to the latter.

IQE is a supplier of composite wafers for the production of semiconductor chips. They are widely used in wireless technologies such as 5G and smartphones.

As consumer electronics demand has fallen sharply due to inflation, the group has been struggling of late. This impact has only been exacerbated by the disposal of goods across the sector. But market conditions are starting to improve. And with cost-cutting efforts by management set to hopefully boost margins, change is likely.

However, at the time of my first investment, my knowledge of the semiconductor industry was very limited. As a result, I ended up paying more, which translated into a bigger loss when I sold in 2020.

3. Invest for the long term

When he invests in a business, with rare exceptions, Buffett is committed to holding his position forever. And in some cases, that extends to decades. You have shares Coca-Cola 36 years too American Express 31 years. And even some of his later sales came decades later, like Wells Fargo again Costco Wholesale.

This cuts to the core of his investment philosophy. He wants to build wealth by owning amazing companies and riding the coattails of their long-term success. And even though my portfolio is small compared to his, it's a strategy that has greatly improved my performance over the years.