How Warren Buffett changed the way we think of investing

NEW YORK – As Mr Warren Buffett, 94, called an end to his historic run atop Berkshire Hathaway, Wall Street luminaries rushed to praise the man whose extraordinary investment career spanned more than 80 years (he bought his first shares when he was 11).

The famed investor delivered a more than 5,500,000 per cent return on Berkshire’s stock as he turned a once-failing textile firm into the most valuable company in the world that is not either a tech giant or state oil producer. In the process, he became the rare investor who crossed over into public consciousness through his folksy wisdom and witticisms. 

Mr Buffett’s approach to investing is deceptively simple.

“Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” he once wrote to Berkshire shareholders.

This method – known as value investing – had existed long before Mr Buffett began his career. But no one did it as well – or for as long – as he did.

Over the 60 years that Mr Buffett has controlled Berkshire Hathaway, he used value investing to turn a failing textile manufacturer into a US$1.1 trillion (S$1.4 trillion) conglomerate, corporate takeover machine and microcosm of the US economy.

One of America’s largest railroads? Owned by Berkshire. The biggest shareholder in American Express and Coca-Cola? Berkshire, too.

Mr Buffett amassed a Midas-like personal fortune, valued at about US$168 billion, and along the way became the avuncular avatar of American-style capitalism who was called upon for help by both corporate executives and government officials in the 2008 financial crisis.

That unparalleled success earned him millions of admirers around the world. Tens of thousands of them were on hand at Berkshire’s annual meeting in Omaha on May 3 when he declared he finally planned to step down as chief executive.

His announcement was greeted with surprise and then minutes of thundering applause from shareholders – many of whom became millionaires by owning Berkshire stock and hang onto his every financial aphorism.

“I tell people everything I know about investing I learnt from Warren Buffett,” Mr Bill Ackman, a billionaire hedge fund manager who was in the crowd, said in an interview after Mr Buffett’s announcement.

“Warren Buffett represents everything that is good about American capitalism and America itself,” said Mr Jamie Dimon, CEO of JPMorgan Chase.

Mr Buffett has acknowledged that his enormous fortune owes no small debt to pure luck. As he has put it, he won “the ovarian lottery” by being born in the US, when stock markets were primed to create one of the biggest economic booms in modern history.

He learnt about stock picking from a pioneer of value investing, Mr Benjamin Graham, who was his professor at Columbia University. With crucial advice from Mr Charles T. Munger, a fellow Nebraskan who became his long-time business partner, Mr Buffett turned Berkshire into the best-possible argument for the discipline.

But few lived and breathed the discipline as he did, reading corporate balance sheets for research – and fun – from dawn to dusk.

Mr Buffett then put that knowledge to work in several ways. Berkshire bought a vast array of successful businesses, including See’s Candy, Fruit of the Loom and the private jet service NetJets. But the most transformative were the acquisitions of insurers, including National Indemnity and Geico – which sat on premiums that customers paid but had not yet claimed.

That cash, known as the “float”, became the first financial engine of Mr Buffett’s deal machine. He used that money, along with profits from the company’s other businesses, to buy what is now a collection of 189 companies.

Among the biggest are the BNSF railroad, acquired in 2010 for about US$26 billion; and the electricity producer Berkshire Hathaway Energy, purchased in 2000 for US$2 billion that was then expanded via its own acquisitions.

As at March 31, that cash pile was nearly US$348 billion.

Those who have sat across from Mr Buffett at negotiating tables over the years have said that he is friendly and courteous – but unyielding when it comes to the numbers. When he is involved, rounds of haggling over price are not on the cards; he is ready to walk away.

Mr Buffett also used Berkshire’s cash to buy an array of stocks, with a portfolio that includes American Express, Bank of America, Coke, Chevron and – in one of his most profitable investments – Apple. For those companies, Berkshire’s ownership has tended to be the equivalent of a Good Housekeeping Seal of approval.

With Berkshire’s huge balance sheet and Mr Buffett’s unparalleled control, the conglomerate has been able to swoop in at opportune times, buying when others must sell.

Another key to his success was holding onto investments for ages – “our favourite holding period is forever”, he has said – letting returns compound again and again, a process that he has compared to a snowball rolling downhill.

Berkshire’s other advantage for its investors is that it charges no fees, unlike mutual funds or hedge funds. In fact, Mr Buffett has criticised the size of the fees charged by Wall Street vehicles.

That said, Mr Buffett has admitted that he made plenty of mistakes over the years. One was passing up opportunities to invest early in technology giants such as Amazon and Microsoft, whose businesses he said he did not understand at the time.

Still, despite several periods of underperformance, especially in recent years, Mr Buffett’s track record is astounding.

According to his calculations, Berkshire gained 5,502,284 per cent from 1964 through 2024, compared with the S&P 500’s 39,054 per cent over the same period. His average annual gain was 19.9 per cent, while the S&P’s was 10.4 per cent.

Though a Democrat who endorsed Mrs Hillary Clinton for president and whose name graced an Obama-era proposal for higher taxes on the wealthy, Mr Buffett advised presidents from both parties.

That was most visible in 2008, when he was beseeched by corporate executives and the George W. Bush administration to help the global financial system from melting down.

Mr Buffett eventually agreed to invest billions in Goldman Sachs and General Electric, moves that Mr Ackman compared with J.P. Morgan’s efforts to save banks early in the 20th century.

True to form, however, he charged both companies a then astronomical interest rate of 10 per cent – a burden executives have said they were willing to pay to gain his imprimatur and survive.

While the future of Berkshire appears financially solid, long-time Buffett followers say that it may not retain its seemingly mythical status without its chief architect.

Berkshire’s next CEO, Mr Greg Abel, is regarded as an excellent operator of businesses and a savvy dealmaker, and Mr Buffett hired Mr Todd Combs and Mr Ted Weschler as high-level investment executives more than a decade ago.

But some investors worry that the company will become a bit less special and will not revolve around the stock picking that put it on the map.

Mr Bill Smead, whose investment firm owns Berkshire stock and who attended the 2025 annual meeting, said the company has already become less ambitious, eschewing potentially transformative deals.

“It’s the end of an era,” he said. NYTIMES