Warren Buffett’s famous quote, “be fearful when others are greedy and greedy when others are fearful,” inspired 26-year-old Natalie Fisher to start investing in the stock market in 2020.
Fisher’s story isn’t unique. The Oracle of Omaha has been a role model for countless investors throughout his career, with fans regarding him as a father figure, teacher, and value-investing legend.
Buffett’s decision to step down as the CEO of Berkshire Hathaway — the company that he purchased in 1965 and transformed from a struggling textile mill into a $1 trillion-plus powerhouse — marks the end of an era. Berkshire’s Class A stock has returned over 5,500,000% over six decades, or roughly 20% a year, against the S&P 500’s 39,000% increase over the same period.
“He was obviously a legend in our lifetimes,” Andrew Crowell, the vice chairman of wealth management at DA Davidson, said.
From market experts to everyday people, Buffett’s legacy has touched generations of investors. Here are five takeaways from Buffett’s career that you can use in your own investing journey.
1. Buy businesses, not stocks
One of the key pillars to Buffett’s success is thinking like a long-term business owner, not a speculative stock picker.
“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes,” Buffett said in his 1996 letter to Berkshire Hathaway shareholders.
It’s hard to conceptualize when you’re transacting on Robinhood, but when you buy a company’s stock, you’re becoming a stakeholder — someone who owns a piece of a real business.
“You’re not just buying a ticker symbol. You’re actually a partial owner in a business,” Crowell said. “If a friend of yours asked you to invest $5,000 in their business, you would think about it as well: Who is this friend? How qualified are they? What does this business look like?”
That means investors should dig into how a company actually makes its money. Think about a company’s management team, brand strength, and competitive advantage when you buy in.
2. Invest in what you understand
Buffett and his business partner Charlie Munger popularized the term “circle of competence,” a mental framework that encourages investors to invest in businesses or industries that they understand.
It is OK if you’re circle is small — what’s more important is understanding how the businesses within it operate.
Buffett famously avoided tech stocks for most of his career, saying that he didn’t understand the industry well enough to value them. It wasn’t until 2016 that Buffett bought into Apple, which has since grown to be Berkshire’s largest holding.
What changed? Buffett invested in Apple because he viewed it as a durable consumer brand with a high customer retention rate.
“I don’t understand the phone at all, but I do understand consumer behavior,” Buffett said at Berkshire Hathaway’s annual shareholder meeting in 2023.
Thinking about investing in bitcoin because it’s all over the news? Hopping on the AI trend even though you have no idea how the technology works? Forget about it, according to Buffett.
3. FOMO is your biggest enemy
It’s tempting to hop aboard popular trades, but Buffett’s track record shows that it does pay off to be fearful when everyone else is being greedy, and vice versa.
“When everybody wants in on it, that’s probably not the right time to jump in. You’re probably overpaying for something,” Crowell said. “If you’ve prepared for that, you’ve got some cash on the sidelines, you can take advantage of the fear.”
During the 2008 crisis, panic swept markets as financial institutions like Lehman Brothers collapsed, but Buffett wasn’t sitting out a buying opportunity. He invested $5 billion in Goldman Sachs, buying preferred shares that paid a 10% annual dividend. The bank redeemed Berkshire’s shares in March 2011, but not before paying $1.2 billion in dividends.
4. Cash is king
You don’t have to keep every dollar invested in the stock market at any given moment. Sometimes, there aren’t many enticing buying opportunities.
Berkshire sold a net $1.5 billion of stocks last quarter, growing its cash pile to a record $348 billion. Valuations in the stock market are high right now, and Buffett doesn’t see many exciting opportunities to deploy capital. Instead, Buffett built up a stash of dry powder in cash, cash equivalents, and short-term US Treasurys.
Keeping cash on hand lets you buy the dip, especially in today’s rocky market. “If you’ve prepared for that, you’ve got some cash on the sidelines, you can take advantage of the fear,” Crowell said.
“The trick is, when there’s nothing to do, do nothing,” Buffett once said.
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5. Make a plan and stick with it
Buffett didn’t get rich overnight — in fact, 99% of his wealth came after age 50.
Time, discipline, and compound interest are all critical components to Buffett’s success.
Take Buffett’s investment in Coca-Cola, for example. Between 1988 and 1989, Buffett purchased $1.3 billion of shares in the company.
“Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s dividend checks,” Buffett wrote in Berkshire Hathaway’s 2022 annual report. Berkshire Hathaway’s stake in Coca-Cola is currently valued at over $28 billion.
However, it’s not just about the stocks you buy. It’s also about building up healthy financial habits such as avoiding high-interest debt on credit cards and investing regularly and early on, Buffett recommends.
