My Six Key Lessons From Warren Buffett

Warren Buffett’s surprise announcement about retiring as CEO of Berkshire Hathaway Inc. (BRK.B) ends a very long and highly successful career. He took a failing textile firm and turned it into a highly profitable and very cash-flow-positive conglomerate.

Buffett is a unicorn in terms of investors. Between 1965 and 2024, shares of Berkshire Hathaway realized an annualized return of 19.9%, nearly double the S&P 500 index’s 10.4% return over the same period. A single dollar invested in Berkshire Hathaway in 1964 would have been worth over $5.5 million at the end of last year. The same dollar invested in the S&P 500 would have been worth just $39,000.

Books have been written and will continue to be written about Buffett’s success and investing strategy. There isn’t enough room here to cover them all. Still, there are six key lessons investors can learn from Buffett.

1. Look for good businesses trading at reasonable valuations. Buffett started out by following the deep value strategy of Benjamin Graham, which he said involved buying the equivalent of cigar butts with one puff left. Under the encouragement of Charlie Munger, Buffett began seeking higher-quality businesses. This led him to put together what we now know as Berkshire Hathaway.
2. Strategically reinvest cash. The growth in Berkshire Hathaway started with Buffett investing the company’s excess cash outside of the textile sector instead of plowing it back into the struggling company. He continued to follow the practice consistently, most notably putting the float from his insurance companies (premiums collected but yet to be paid out to claims) into equity investments and other more attractive opportunities. Individual investors can do the same by ensuring dividends and distributions are allocated to their best possible use, which may not necessarily be the company or fund that paid them.
3. Smaller portfolios provide more investment opportunities. During a large part of Buffett’s tenure, Berkshire Hathaway was small enough to allow Buffett to have a good selection of potential investments that could make a difference in his company’s returns. Berkshire Hathaway now has a much smaller set of such investments due to its size, but we individual investors continue to have a large set of companies to choose from. Our smaller portfolios allow us to meaningfully allocate to attractive investment opportunities that institutional investors cannot.
4. Minimize costs. Buffett has criticized the investment industry’s fee structure over the years, not just by touting the benefits of index funds, but also by criticizing the fees charged by investment bankers and hedge funds. Berkshire Hathaway itself gave (and continues to give) individual investors access to privately held businesses and a managed portfolio of publicly traded securities at no charge. Every dollar not wasted on unnecessary fees is a dollar that can grow in the future.
5. Stay within your circle of competency. Buffett famously avoided technology stocks for years because he didn’t understand their businesses. It is a good rule to follow. If you don’t understand what drives a company’s sales and profits, you won’t be able to easily determine when company- or sector-specific risks are emerging.
6. Time is an advantage. Berkshire Hathaway’s structure meant that Buffett never had to worry about losing clients because he underperformed for a quarter or a year. Rather, he could maintain a long-term focus and hold certain investments forever. We individuals can do the same. Never having to report performance allows us to invest for our goals, not short-term performance.

Buffett’s success was built on patience, discipline and common sense. These six lessons are the ones that stand out to me—but what about you? What have you learned from Buffett’s approach to investing? Share your thoughts in the comments below.