Key Takeaways
- Warren Buffett focuses on buying quality businesses at reasonable prices, not flashy companies or market trends.
- Long-term thinking beats market timing—he holds his best investments “forever” and is famously patient before buying a company’s shares.
Buffett didn’t get rich chasing the next big thing. He built a trillion-dollar empire by doing almost the exact opposite—waiting patiently, buying stocks with low prices but greater value, and letting time do the heavy lifting.
It sounds simple, but it’s earned him returns that have made him legendary on both Wall Street and Main Street. Since taking control of Berkshire Hathaway Inc. (BRK.A, BRK.B) in 1965, Buffett has reaped returns of 5,500,000%, the equivalent of turning $10,000 into more than $55 million.
Invest in What You Understand
Buffett famously avoided tech stocks during the dot-com boom, explaining he didn’t understand their business models. Critics called him outdated. Then the bubble burst, wiping out trillions while Berkshire kept growing. This principle—staying within your “circle of competence“—protects against the biggest investment killer: buying into hype because you don’t understand the business being sold.
Instead of chasing the latest trends, Buffett sticks to businesses with predictable cash flows and competitive advantages. Coca-Cola (KO) sells beverages. GEICO sells car insurance. American Express (AXP) processes payments. These aren’t exciting, but they’re understandable and and have gained Buffett billions.
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Focus on Quality
Buffett learned this lesson the hard way. Early in his career, he bought cheap companies hoping to flip them quickly—what he called “cigar butt” investing. The results were disappointing. Now he focuses on “wonderful companies at fair prices” rather than “fair companies at wonderful prices.”
Quality means businesses with “moats“—competitive advantages that protect profits over time. Coca-Cola’s global brand recognition, American Express’s extensive network, and Apple’s (AAPL) ecosystem all create barriers that competitors can’t easily cross. These companies can raise prices, expand margins, and generate consistent returns.
Apple is Berkshire’s biggest holding, at about a fifth of its portfolio. The tech giant combines brand strength with recurring revenues from services—exactly the quality characteristics Buffett values.
Look for Undervalued Companies
Buffett searches for companies trading below their intrinsic worth, focusing on fundamentals like low price-to-earnings ratios, strong cash flow, and good management.
This year, as investors poured money into AI-related stocks, Berkshire Hathaway loaded up on companies many ignored, like Pool Corp. (POOL), which supplies swimming pool equipment, and Constellation Brands (STX), maker of Modelo beer.
Both had stock prices that had dropped in recent years, despite still dominating their industries. Buffett perhaps sees what others miss: long-term value hiding in short-term noise.
Think Long-Term
Buffett’s investing style is often described as boring because it involves very little trading. He once said that “our favorite holding period is forever.”
Buffett buys companies with the intention of holding them through thick and thin, as long as the business fundamentals stay intact. This allows compounding to work as a strong company’s earnings and dividends can grow exponentially over decades.
Buffett’s value investing philosophy shows that you don’t need complex formulas or rapid trades to build wealth.