Few investors have come close to replicating Warren Buffett’s legacy of success. The billionaire investor has achieved spectacular market-beating returns over the last 60 years with his investment firm, Berkshire Hathaway (NYSE:BRK.B), delivering close to 20% annualised gains for shareholders.
And during this time, he’s dropped plenty of nuggets of wisdom that can help investors strive for better wealth-building gains.
- Invest in what you understand.
- The stock market is a device for transferring money from the impatient to the patient.
- Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
- Be fearful when others are greedy and greedy when others are fearful.
- Price is what you pay. Value is what you get.
- The most important quality for an investor is temperament, not intellect.
- The best investment you can make is in yourself.
Actions speak louder than words
Looking at his advice, his style as a contrarian value investor focused on the long-term becomes perfectly clear. But his track record demonstrates that Buffett practises what he preaches.
During market meltdowns, Buffett rarely sells, preferring to hold through the volatility and even starts buying more shares in top-notch businesses during the chaos. Yet he never ventures into sectors or industries beyond his circle of competence, as demonstrated by his avoidance of technology stocks until recent years.
All the while, he’s had his eye on valuations, ensuring that capital is only ever put to work when a fair price emerges. Over the last five years, with US stocks suspected of getting too expensive, Berkshire’s cash & equivalents have surged to just shy of $350bn as of March.
As such, should the stock market crash or undergo another correction in the coming years, Buffett’s prepared for another massive shopping spree. Or rather, his team will be now that the ‘Oracle of Omaha’ has announced his plans to step down at the end of 2025.
How Buffett used his own advice
A great example of Buffett applying these seven tips would be Berkshire’s investment in Coca-Cola.
- It’s a simple consumer-facing business that sells soft drinks.
- Since his initial investment in 1988, he has never sold a single share. And with shareholder payouts continuously rising over the decades, his investment firm now earns over $700m in dividends every year.
- Coca-Cola has a wide economic moat protected by immense brand recognition, enabling the business to generate steady and consistent cash flows.
- Berkshire’s investment in Coca-Cola came just after the 1987 stock market crash, when most investors were panic selling.
- Coca-Cola shares were considered to be overvalued when Buffett decided to buy. But most investors were unable to see the firm’s long-term value.
- Coca-Cola has endured plenty of periods of underperformance driven by a variety of factors, from economic slowdowns to supply chain disruptions. Yet Buffett continued to hold on through the storms.
- Buffett is notorious for reading and expanding his knowledge of branding power, consumer behaviour, and business economics, which enable him to discover winning opportunities like Coca-Cola over the years.
In summary, Buffett’s extraordinary success isn’t built on complex strategies. Instead, it came from a disciplined and consistent long-term focus on buying quality companies at fair prices and not panicking when the markets start to wobble.
