Warren Buffett is known for his patient, long-term approach to investing. He often compares the stock market to a mechanism that transfers wealth from the active to the patient. In his 1991 Berkshire Hathaway Annual Letter, Buffett highlights the company’s first significant international investment in Guinness.
He also reaffirms his confidence in enduring businesses like Coca-Cola and Gillette. Buffett emphasizes the importance of investing in large, understandable businesses with strong economics and exceptional management. He rejects frequent trading or diversification across mediocre enterprises.
Quoting John Maynard Keynes, Buffett advocates concentrating investments in a few well-understood companies with trustworthy management.
Buffett’s patient investing philosophy
He notes that success comes from careful selection and long-term commitment, not constant buying and selling.
“As usual, the list reflects our Rip Van Winkle approach to investing,” Buffett writes in the letter. “Guinness is a new position. But we held the other seven stocks a year ago (making allowance for the conversion of our Gillette position from preferred to common), and in six of those, we hold an unchanged number of shares.”
The exception is Federal Home Loan Mortgage (“Freddie Mac”), in which Berkshire’s shareholdings increased slightly.
Buffett says this stay-put behavior reflects his view that the stock market serves as a relocation center at which money is moved from the active to the patient. “With tongue only partly in check, I suggest that recent events indicate that the much-maligned ‘idle rich’ have received a bad rap,” Buffett quips. “Indeed, the question ‘Why should the rich be idle?’ may be a more appropriate one to address to the protagonists of activity who have delivered no real value to society.”
Buffett’s Rip Van Winkle approach to investing is all about patience and focus.
By carefully selecting a few high-quality businesses and holding them for the long term, he believes investors can achieve superior returns while minimizing risk and stress.
