Sign in Subscribe

From Fall River to Fortune: The Remarkable Turnaround Tale of Berkshire Hathaway

By sagebytes —

Warren Buffett's Investment Best Practices

Insights from Berkshire Hathaway's Annual Letter

Focus on Business Fundamentals, Not Stock Prices

"We own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers."

Seek Businesses with Durable Advantages

Invest in businesses with:

  • Durable economic advantages
  • First-class management
  • Strong fundamentals that will endure over time

Think Long-Term

Berkshire's remarkable 57-year track record (3,641,613% overall gain vs. S&P 500's 30,209%) demonstrates the power of long-term thinking and compounding.

Maintain Financial Strength

  • Always keep substantial cash reserves (Berkshire pledges to hold more than $30 billion)
  • Be "financially impregnable and never dependent on the kindness of strangers"
  • Sleep soundly knowing you're prepared for opportunities and challenges

Be Opportunistic but Patient

  • Wait for the "shooting-fish-in-a-barrel" opportunities that occasionally arise
  • Recognize when market conditions create bargains in wonderful businesses
  • Be willing to hold significant cash when attractive opportunities aren't available

Value the Power of Share Repurchases

When shares are available at appropriate prices, repurchases can:

  • Increase your share of controlled and non-controlled businesses
  • Create value for continuing shareholders
  • Be "the easiest and most certain way" to increase shareholder wealth

Don't Be Swayed by Interest Rates

Understand that "long-term interest rates that are low push the prices of all productive investments upward" - and factor this into valuation judgments.

Think Like an Owner, Not a Trader

  • Buy businesses you'd want to own permanently
  • Focus on long-term earning power, not short-term price movements
  • Work with people you like and trust

Remember the Orangutan Effect

Explaining your investment thesis clearly to others helps develop and clarify your own thoughts.

Never Bet Against America

Buffett's first investment in 1942 (when the Dow was at 99) provides perspective: America's economic growth has consistently rewarded long-term investors.

"Find work you love with people you respect. Then it's no longer 'working.'"