Background
Warren Buffett is the most successful investor in history, turning a partnership started with $105,000 in 1957 into Berkshire Hathaway's $900+ billion market cap. His annual returns have averaged approximately 20% over 60+ years. He refined Benjamin Graham's value investing approach into a quality-focused methodology centred on 'economic moats' — sustainable competitive advantages.
Core Methodology
Buffett evolved from Graham's 'cigar butt' deep value approach to buying wonderful companies at fair prices (influenced by Charlie Munger). His methodology: identify businesses with durable competitive advantages (moats), buy them when the market undervalues them, and hold indefinitely. He uses 'owner earnings' (net income + depreciation - capital expenditure) rather than reported earnings.
Key Trading Rules
- Buy wonderful businesses at fair prices — not fair businesses at wonderful prices
- Identify economic moats: brand power, network effects, switching costs, cost advantages, regulatory barriers
- Use 'owner earnings' = net income + depreciation/amortisation - maintenance capex
- Margin of safety: buy at a significant discount to your estimate of intrinsic value
- 'Be fearful when others are greedy, and greedy when others are fearful'
- The best holding period is forever — only sell if the moat deteriorates or the position is wildly overvalued
Key Concepts
Books & Resources
The Essays of Warren Buffett by Lawrence Cunningham. Berkshire Hathaway annual shareholder letters (free online). The Intelligent Investor by Benjamin Graham (Buffett's recommended starting point).