The Incremental Edge

Warren Buffet is one of the most successful investors of all time. He has amassed a fortune of over $100 billion by following a simple yet effective strategy: buy and hold quality businesses at reasonable prices. Let’s explore some of the most important lessons that we can learn from his approach and apply them to our own investing decisions.

Lesson 1: Think long-term

Buffet is not interested in short-term fluctuations or market trends. He focuses on the intrinsic value of a business, which is the present value of its future cash flows. He looks for companies that have durable competitive advantages, such as strong brands, loyal customers, or economies of scale. He then holds them for decades, allowing them to compound their earnings and grow their value over time.

Lesson 2: Be selective

Buffet does not invest in every opportunity that comes his way. He follows the principle of “circle of competence”, which means that he only invests in businesses that he understands well and can evaluate with confidence. He avoids sectors that are too complex, unpredictable, or outside his expertise, such as technology, biotechnology, or commodities. He also waits for the right price to buy, which is when the market offers a significant margin of safety between the price and the value of a business.

Lesson 3: Be contrarian

Buffet does not follow the crowd or the media. He often goes against the conventional wisdom and buys when others are fearful and sells when others are greedy. He takes advantage of market inefficiencies and emotional reactions to create opportunities for himself. He once said, “Be fearful when others are greedy and greedy when others are fearful.”

Lesson 4: Learn from mistakes

Buffet is not infallible. He has made some mistakes in his investing career, such as buying Berkshire Hathaway, a textile company that was losing money, or investing in Dexter Shoe, a company that went bankrupt. However, he does not let his mistakes discourage him or prevent him from learning from them. He admits his errors, analyzes what went wrong, and tries to avoid repeating them in the future.

Lesson 5: Have fun

Buffet enjoys what he does. He has a passion for investing and learning about businesses. He does not view investing as a chore or a burden, but as a game or a puzzle. He also has a sense of humor and a humble attitude. He once said, “I get to do what I love to do every day. If you look in the dictionary under ‘fun,’ you’ll see my picture.”