9 important investment experiences of Buffett

Source: KTVZ21; Translated by: Tao Zhu, Golden Finance

From making profits by selling chewing gum as a child, to building textile manufacturing company Berkshire Hathaway into a giant conglomerate and becoming one of the S&P 500 stocks, Warren Buffett has shared numerous investment advice over the years.

Buffett is widely regarded as the greatest investor of all time, so when he speaks, we investors should usually listen carefully. His name as "The Prophet of Omaha" is not a false reputation.

Buffett announced that he will step down as CEO at the 2025 shareholder meeting of Berkshire Hathaway at the end of the year. Therefore, in order to commemorate his seemingly continuous investment wisdom - Buffett is still the chairman, so he is not fully retired - this article summarizes nine important investment experiences from Berkshire Hathaway's annual shareholder letter over the past 60 years.

1. Invest in the business you know

Invest only in companies you can thoroughly evaluate. Stay humble – admit what you don’t know and don’t invest in businesses you don’t know. When Buffett was a child, he went door to door to promote Coca-Cola, invested in Coca-Cola stocks in 1988, and received a dividend of US$776 million in 2024.

You don't have to be an expert in every company, or even many companies. You just need to be able to evaluate companies within your circle of competence. The size of this circle of competence is not important, but understanding its boundaries is crucial.

2. Acquire excellent companies at reasonable prices

Acquire quality companies at reasonable valuations. Don't buy mediocre companies just because they are cheap. Berkshire Hathaway acquired See's Candies for $25 million in 1972, and as of 2011, the company's pre-tax profit reached $1.65 billion. He called See's "a model of dream business."

It is much better to acquire a good company at a reasonable price than to acquire a normal company at a good price.

3. Long-term consideration

Avoid frequent trading, long-term holding, and benefit from business growth. Over time, a robust company will increase profits, expansion and innovation.

In fact, when we hold stocks of excellent companies and excellent management, our ideal holding period is forever.

4. Focus on intrinsic value

Investments should be based on the intrinsic value of the company, not the market price. The market is sometimes irrational.

We define intrinsic value as the discounted value of cash that an enterprise can withdraw for the remaining life cycle. Anyone who calculates intrinsic value will inevitably come up with a highly subjective number that changes with future cash flow estimates and interest rate changes. However, although intrinsic value itself is relatively vague, it is crucial and the only reasonable way to assess the relative attractiveness of investments and businesses.

5. Greed when others are afraid

Buy when the market is pessimistic to obtain undervalued assets. Stay rational when others are in trouble. During the 2008 global financial crisis, Buffett invested $5 billion in Goldman Sachs preferred stock. Goldman Sachs redeemed the stocks in 2011, bringing $3.7 billion in profits to Berkshire Hathaway.

However, we do know that two super-infectious diseases, fear and greed, will always break out occasionally in the investment world. The timing of these pandemics is unpredictable. The market anomalies they cause are equally unpredictable, both in duration and in degree. Therefore, we never try to predict the arrival or subsidence of these two diseases. Our goal is more modest: we are just trying to be afraid when others are greedy and only when others are terrified.

6. Avoid emotional investment

Investment decisions should be based on analysis, common sense and reasonable judgment rather than emotional reactions. Avoid being swayed by fear and greed.

In my opinion, investment success does not come from obscure formulas, computer programs, or signals sent by stocks and market price behavior. Instead, investors’ success lies in combining good business judgment with their ability to isolate their thoughts and behaviors from the highly infectious emotions in the market.

7. Ignore market noise

Focus on the fundamentals of the company and the long-term prospects of your investment business, rather than short-term market forecasts or media hype.

It is a waste of time to form a macro perspective or listen to other people's macro or market forecasts. In fact, this is dangerous because it can blur your perception of the facts that really matter. (When I heard the TV commentator gushing about the next move of the market, I remembered Mickey Manto’s sarcastic comment: “You don’t know how simple this game is until you walk into that studio.”)

8. Pay attention to competent management

Think of stock investment as being part of the owner of a company. Who do you want to be by your side? Invest in businesses run by honest and competent managers.

The way we choose circulating stock securities is roughly the same as we evaluate a business’s overall acquisition. We hope that the business (1) we can understand; (2) have good long-term prospects; (3) run by honest and capable people; and (4) have an attractive price.

9. Patience is a virtue

Be patient and wait for investment opportunities that meet your standards and avoid unnecessary actions. Similarly, give your investment time to grow and trust the long-term potential of a good company.

Patience can be learned. “Having a longer duration of attention and the ability to focus on one thing for a long time is a huge advantage,” said Charlie Munger.

Summarize

Warren Buffett’s letter to shareholders over the past decades is summarized as follows: Invest in areas you know, maintain discipline, and fight a protracted war patiently. From choosing companies with strong fundamentals to waiting patiently for the right opportunity, Buffett's teachings are a reliable roadmap to smarter investments.