No investor is better known than Warren Buffett. For six decades he has run Berkshire Hathaway from a modest office in Omaha, Nebraska, and his annual shareholder letters have become free lessons for millions. In Part 3 of Legendary Investors, we look at how Buffett built his record and what ordinary investors can borrow from him.
An early start
Buffett was born in Omaha in 1930. He bought his first stock at 11, ran paper routes and small businesses as a teenager and filed his first tax return at 13. After reading Benjamin Graham's The Intelligent Investor, he enrolled at Columbia to study under Graham, and later worked for him in New York.
In 1956 he returned to Omaha and started the Buffett Partnership with money from family and friends. Over 13 years the partnership comfortably beat the market. In 1969, feeling that bargains had become scarce, he closed it.
The Berkshire story
In the 1960s Buffett bought control of Berkshire Hathaway, a struggling New England textile maker. He later called it one of his worst decisions, because textiles were a dying business. But he turned the company into a holding company: he used its cash, and later the "float" from insurance businesses, to buy whole companies and large stakes in listed ones.
Today Berkshire owns businesses ranging from insurance (GEICO) and railways (BNSF) to energy, manufacturing and retail, plus large shareholdings in listed companies. From 1965 onward, Berkshire's market value grew at roughly 20% a year for decades, far ahead of the US market index.
From cigar butts to wonderful businesses
Early on, Buffett followed Graham closely, buying "cigar butts": poor businesses priced so cheaply that they had one last puff of profit left. The turning point came with partner Charlie Munger (Part 4) and the 1972 purchase of See's Candies.
See's cost more than its book value, which troubled the Graham in him. But it had loyal customers and could raise prices each year without losing sales. It produced cash for decades with little reinvestment. Buffett learned that "it's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Key ideas in plain words
Economic moats
Buffett looks for businesses with a durable advantage that keeps competitors away: a trusted brand, low costs, network effects or high switching costs. He calls this a moat around the castle.
Circle of competence
He invests only in businesses he can understand. For years he avoided most technology stocks for this reason. "What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know."
Owner earnings and management
He thinks like a business owner, focusing on the real cash a company produces and on managers who are honest, capable and treat shareholders' money like their own.
Insurance float
Insurers collect premiums before they pay claims. That pool of money, called float, can be invested in the meantime. Disciplined underwriting made Berkshire's float a large, low-cost source of capital.
Patience and temperament
"Our favourite holding period is forever," he wrote. He has held Coca-Cola, bought in 1988, for decades. And he says the stock market transfers money "from the active to the patient."
Famous moves
- American Express (1960s): bought after a scandal crushed the shares, betting the brand was intact.
- Coca-Cola (1988): a global brand with pricing power, bought after the 1987 crash.
- 2008 crisis: provided capital to firms such as Goldman Sachs on favourable terms.
- Apple (from 2016): a late move into tech, treating Apple as a consumer brand with loyal customers. It became one of Berkshire's largest holdings.
Mistakes he admits
Buffett is open about his errors: buying Berkshire's textile business, paying in Berkshire shares for Dexter Shoe, which later failed, and missing big early opportunities in companies like Google and Amazon. His willingness to admit mistakes in public is part of why investors trust him.
Advice for ordinary investors
Interestingly, Buffett does not suggest most people copy him. He has repeatedly said that a low-cost index fund tracking the broad market is the best choice for most individual investors. In 2007 he even bet a hedge fund firm that an S&P 500 index fund would beat a selection of hedge funds over ten years, and he won.
Succession
In 2025, at age 94, Buffett announced he would step down as chief executive at the end of that year, with Greg Abel taking over while Buffett remained chairman. He has also pledged the vast majority of his fortune to philanthropy.
The takeaway
Buffett's methods are simple to describe and hard to follow: understand the business, buy quality at a sensible price, avoid debt-fuelled risks and let time do the heavy lifting. The hardest part is temperament, staying calm when everyone else is fearful or greedy.
In Part 4, we meet the partner who changed Buffett's thinking: Charlie Munger.
Legendary Investors: the full series
- Part 1: Benjamin Graham
- Part 2: Philip Fisher
- Part 3: Warren Buffett (you are here)
- Part 4: Charlie Munger
- Part 5: John Templeton
- Part 6: Peter Lynch
- Part 7: John Bogle
- Part 8: George Soros
- Part 9: Ray Dalio
- Part 10: Jim Simons
This series is for education only and is not investment advice. Returns, dates and figures are commonly cited historical values and may vary slightly between sources. Past performance does not guarantee future results.
