Key Takeaways:
- Legendary investor Warren Buffett is approaching retirement. There’s a lot we can learn from his remarkable career.
- We discuss five steps to invest more like Buffett: Think like a business owner, look for moats, quality over quantity, embrace lifetime learning, and be patient.
- Many investors don’t have the discipline to imitate Buffett’s strategy, but we think it can be one of the best paths to long-term wealth creation.
Warren Buffett is retiring at the end of this year, capping an incredible 60-year run leading Berkshire Hathaway. Many consider Buffett to be the greatest investor of all time. Yet the secret to his success is no secret at all: Through decades of letters and Q&A sessions at Berkshire’s annual meetings, Buffett has regularly shared his investment strategy with anyone willing to listen. Here are five steps to invest more like Buffett:
1. Buffett’s Core Investment Principles
Stocks aren’t just squiggly lines on a computer screen. They represent ownership in real businesses. Thinking like a business owner is a profound shift in perspective for most investors.
If you owned a local restaurant, would you stand on the street corner every morning, asking strangers how much they’re willing to pay for your business? Of course not! You’d be in the kitchen or dining room, trying to provide great service and delicious food. The best way to increase the long-term value of a business is to grow its earnings and cash flows.
The same is true with stocks: You just own a much smaller slice of a much larger company. Don’t obsess over daily stock price fluctuations. Focus on growing the combined earnings of your portfolio over 5 or 10 years. In the long run, stock prices tend to closely track earnings.
2. The Power of Moats and Patience
Buffett coined the term “economic moat” to mean a sustainable competitive advantage. A successful business is like a castle under constant attack by competitors. They want to steal the business’ customers, undercut its prices, and erode its profit margins. A moat keeps competitors away.
Moats can take many different forms. Brands inspire customer loyalty and pricing power. Buffett is especially fond of consumer brands like Coca-Cola and See’s Candy. Regulatory barriers can also serve as a moat. With all the permits and rights-of-way you’d need, it would be nearly impossible to build a new railroad to compete with Berkshire’s BNSF Railway. Network effects, such as those enjoyed by long-time Berkshire investment American Express, can be an especially powerful moat. The more merchants accept Amex cards, the more consumers want to use them, and the more consumers pay with Amex, the more merchants feel compelled to accept it.
3. Quality Over Quantity: A Concentrated Approach
Diversification is important, but for active investors seeking to outperform the market, it’s also important to focus your capital on your best ideas (within reason). At Trajan Wealth, our active equity strategies typically own around 20 to 30 individual stocks. You don’t want our 50th or 100th best idea!
Along the same lines, Buffett emphasizes the importance of staying within one’s “circle of competence.” There are thousands of publicly traded companies. No investor can expect to understand or follow them all, but the reality is you only need a few great ideas to achieve solid investment results. Buffett once stated that Berkshire’s performance was mostly the product of “about a dozen truly good decisions” over his 60-year tenure. That’s one great idea every five years!
4. Embrace Lifetime Learning
Buffett is retiring at age 95 with a net worth above $150 billion. (After donating more than half his Berkshire shares to charity!) Yet he still lives in the same Omaha, Nebraska, house he bought in 1958 for $31,500. That humility extends to his investment style.
For decades, Buffett famously avoided technology stocks. Then in his mid-80s, Buffett made a huge bet on Apple stock. At one point, Berkshire’s Apple shares were worth around $175 billion dollars!
The lesson? While investors need to stay within their circle of competence, they should relentlessly expand the boundaries of that circle. The business world is always changing, so there’s always something new to learn.
5. Be Patient
Do you picture a portfolio manager staring at 10 different computer monitors, with three TVs in the background tuned to financial news? Maybe they pick up the phone every few seconds to place a trade? Are they jetting around the world to meet with CEOs? The truth is that quality long-term investing isn’t nearly that exciting. Buffett spends most of his day sitting quietly in his office, reading and thinking.
By learning as much as possible about different businesses, Buffett recognizes patterns that help him find favorable risk/reward opportunities. When he identifies an opportunity, he often invests for decades.
Most investors don’t have the patience for this style of investing. They want action! But as Buffett once said, “the stock market is a device for transferring money from the impatient to the patient.”
FAQ
We think the core principles described in this article can benefit any investor. However, there are aspects of Buffett’s success that would be difficult to imitate, including his use of insurance “float” and his reputation, which occasionally results in unique investment opportunities. For the first half of Buffett’s career, the investing field was also much less competitive than it is today. So don’t expect to replicate Buffett’s nearly 20% annual return over 60 years. But following Buffett’s principles can still contribute to better-than-average outcomes for investors.
Greg Abel is expected to take over as CEO of Berkshire Hathaway at the start of 2026. Abel came up through Berkshire’s utility operations, and he has been overseeing all non-insurance operations since 2018 (with Ajit Jain leading the insurance business). Abel is known as a more hands-on operational manager than Buffett; less is known about his skill as an investor.
Berkshire has always been organized as a loose collection of diverse, independent subsidiaries, with minimal oversight from the corporate headquarters. The businesses were assembled for their enduring competitive advantages. Therefore, in the new term, we don’t expect much to change with Buffett’s retirement. The real question is how the company will evolve over the next 10 or 20 years, with Buffett no longer deciding how to allocate Berkshire’s prodigious cash flows.
The Trajan Wealth Advantage
By thinking like a business owner, you can tune out the market’s daily noise and let the power of compounding work for you. Contact Trajan Wealth to get started!
