Buffett's investment philosophy is centered on value investment, integrating long-termism, risk control and business insight, forming a philosophical system that has been verified by the market. The following is a summary and interpretation of his core concepts:
1. Core Concept: From “What to Buy” to “How to Buy”
Value investing: looking for undervalued high-quality companies
Buffett advocatesPrice below intrinsic value of the businessWhen buying stocks, pay attention to the fundamentals of the company (such as profitability, cash flow, liabilities, etc.) rather than short-term stock price fluctuations. He believes that the essence of investment is to "buy excellent companies at reasonable prices", such as long-term holding of companies such as Coca-Cola and American Express, and achieve wealth growth through the company's continued profitability.
Key Operations: Through in-depth financial analysis, we look for companies with stable operations, high dividend rates and honest management.Safety margin: leaving room for risk
Inheriting from his mentor Graham’s “buy $1 worth of stuff for 40 cents”, Buffett emphasizesThe purchase price must be significantly lower than the intrinsic value, in order to resist market fluctuations and misjudgment. For example, he invested in Goldman Sachs and General Electric against the trend during the 2008 financial crisis, precisely based on the principle of margin of safety.Economic Moats: Investing in Long-Term Competitive Advantages
Enterprises need to haveBrand barriers, cost advantages, technological monopoly or network effectsFor example, Coca-Cola’s brand value and Apple’s ecosystem are both typical moat examples.Long-termism: Compound interest effect and the magic of time
“If you don’t want to hold a stock for 10 years, don’t hold it for 10 minutes.” Buffett uses compound interest to achieve exponential growth in wealth by holding high-quality assets for a long time (for example, holding Coca-Cola for more than 35 years and making a profit of more than $30 billion). More than 90% of his wealth was accumulated after the age of 60, which is a manifestation of compound interest.Competence circle principle: only invest in areas that you understand
Buffett insists onFamiliar industryThe company invested in traditional sectors such as consumption and finance, but was cautious about early-stage technology stocks. It was not until it understood Apple's business model that it included it in its heavy holdings.Reverse thinking: taking advantage of market sentiment fluctuations
"Be greedy when others are fearful, and be fearful when others are greedy." For example, buying the bottom when the stock market crashed in 1973 (Washington Post) and buying bank stocks against the trend during the 2008 financial crisis.
2. Strategy Execution: Discipline and Flexibility
Concentrated investment vs. diversified risk
Buffett prefers highly concentrated investments (the top ten holdings account for 90% of Berkshire's portfolio), but recommends diversification for ordinary investors, such as dividing funds into stable investments (50%), liquid funds (30%) and advanced investments (20%).Cash is King: Keep Emergency Liquidity
Berkshire maintains a huge cash reserve (US$334.2 billion by the end of 2024) to cope with market crashes or unexpected opportunities. Ordinary investors should also set aside 10%-20% of emergency funds to avoid being forced to sell at a low price.Adjustment based on the current situation
In recent years, while sticking to core U.S. assets, Buffett has expanded his investment in traditional Japanese industries (such as Itochu, Mitsubishi and other trading companies), valuing their stable cash flow and low valuations.
III. Implications for Ordinary Investors
Long-term fixed investment and compound interest accumulation
By investing in index funds or high-quality stocks, you can use time to create a compound interest effect and avoid frequent trading.A rational view of market fluctuations
Treat the market as a "weighing machine" rather than a "voting machine", ignore short-term noise and focus on the long-term value of the company.Risk management first
"Avoiding permanent loss of principal" is the first principle. Ordinary investors should control their stock positions (it is recommended not to exceed 30% of total assets) and set a stop loss line.Learning and expanding your circle of competence
Start by reading corporate financial reports, gradually expand your understanding of the industry, and avoid blindly chasing hot spots.
4. Buffett’s “Change” and “Unchange”
Unchanged: The core of value investing, confidence in the U.S. economy, and long-term holding of high-quality companies.
Changes: Adjust strategies due to scale limitations (such as increasing overseas investments) and select targets among technology stocks (such as Apple).
Buffett's philosophy may seem simple, but it requires strong discipline and patience in execution. As he said, "Investment does not require high IQ, but requires stable emotions and the ability to think independently." Ordinary investors can learn from his framework and flexibly adjust it according to their own risk tolerance to achieve steady wealth growth.
