Warren Buffett bought his first stock at age 11 and his first real estate at 15. Today, the Oracle of Omaha is worth $147 billion and is known for identifying promising investments. Buffett has shared his expertise over the years in interviews and letters to Berkshire Hathaway shareholders.
Buffett invests in good businesses for the long term. He researches companies’ operations, news, and balance sheets. In his 2022 letter to shareholders, he wrote: “We own publicly traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales.
Charlie [Munger] and I are not stock-pickers; we are business-pickers.”
During the 2008 recession, Buffett reminded shareholders about the importance of value. He even bought more of certain stocks. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down,” Buffett said.
Buffett knows not every low-priced stock is a good value. He quotes his mentor, Ben Graham: “Price is what you pay; value is what you get.” Finding valuable purchases requires research and finding good companies, not just cheap stocks. One of Buffett’s rules is only investing in businesses he understands.
He believes this works even for those without his decades of experience.
Buffett’s approach to value investing
As he wrote in 1996: “You don’t have to be an expert on every company or even many.
You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important. Knowing its boundaries, however, is vital.”
Buffett picks stocks because he knows the business.
For non-professionals, he recommends low-cost index funds. In 1996, he wrote: “Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results… delivered by the great majority of investment professionals.”
An index fund tracks the performance of a market index, which measures the performance of a group of assets.
The S&P 500 tracks the 500 highest-valued U.S. stocks. S&P index funds divide investments among those stocks in different ways. Buffett plays the long game.
He believes in the market’s general upward trajectory. As he told shareholders in 2016, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
Buffett has made billions buying good companies that can ride the market’s long-term growth. He believes others can do the same by investing for the long haul.
