The Key Idea Behind Warren Buffett’s Investing Strategy can really help your stock portfolio. Warren Buffett is the most successful investor of all times’. So in this short blog post I’ll share what I think is the key idea behind Buffett’s investment strategy. And hopefully this can help you learn from the Oracle of Omaha. But you must be wondering…
Who am I to tell you the key idea behind Buffett’s investing strategy?
Well, I won’t call myself a Warren Buffett expert like Roger Lowenstein or Alice Schroeder. But after reading both of those Buffett biographies, watching countless interviews and speeches and reading all of the Berkshire Hathaway Letters to Shareholders, I have a pretty good grasp on the key ideas behind Buffett’s Investing Strategy. So here’s my take on Buffett’s key investment strategy…
Key Idea Behind Buffett’s Investing Strategy:
Warren Buffett says The Intelligent Investor was the most important investment book he ever read. This is because the intellectual framework of value investing immediately clicked with him. Buffett very effectively outlined this argument in his well-known essay, The SuperInvestors of Graham-and-Doddsville. But there’s another key concept Buffett mentioned in the aforementioned essay…
Buffett clearly states there are many ways to apply value investing principles and methodology.
And I would contend that:
Throughout his career, Buffett has become more and more creative in how he applies his value investing methodology.
Allow me to explain this key idea behind Buffett’s investing strategy:
When Buffett began his career he was much more dogmatic about investing on a valuation basis, like his mentor, Ben Graham. This is notably illustrated by his purchase of Berkshire Hathaway, which was a poor business trading at a discount. And while Buffett did ultimately profit from a lot of these strict-value-investing opportunities, he began to relax his standards a little bit.
Here’s what I mean:
As Philip Fisher describes in Common Stocks and Uncommon Profits, there is a profitable case to be made for intelligent growth investing. So it should come as no surprise that as Warren Buffett’s career progresses he seems to be a tad more tolerant of paying for growth. So we could say…
The key idea behind Warren Buffett’s investing strategy is that he has remained flexible and opportunistic at how he looks for value investing deals.
To be sure, Buffett always has a margin of safety in the his investments. But as an example, when Buffett bought the best furniture store in Omaha he wasn’t too concerned about the price he paid. It looked like he knew the business was run incredibly well and he was confident it would be insanely profitable for years to come. There’s a lot of value in those discounted future cash flows, wouldn’t you say?
Buffett also looks for value in a sustainable competitive advantage, great management and a traditional margin of safety. As Buffett’s career progresses he seems to get more and more successful at applying this key idea to refine and optimize his investing strategy. He is able to find and quantify value in all sorts of amazing ways. So…
There’s my opinion on the key idea behind Warren Buffett’s Investing Strategy. If you’re still curious and want to see how Warren Buffett applies his key investing idea, you will love this post about Warren Buffett’s Investment Strategy Tactics. It digs much deeper into exactly what Buffett looks for in his investments (e.g. how his key investment idea is applied).
And By The Way: If you’re still curious to learn even more about how value investing is applied, sign up below for my free mini-ebook and stock investing checklist. It’s free and will show you how I use these techniques every day.