Warren Buffett will likely go down as the best investor of all time. For one, he's got the returns to back it up. Between 1965 and 2024, the company that Buffett runs, Berkshire Hathaway (BRK.A 0.39%)(BRK.B 0.27%), generated compound annual gains of 19.9%, equating to a total return of 5,502,284%. Meanwhile, the broader benchmark S&P 500 has generated compound annual gains of 10.4%, including dividends.
Buffett didn't become one of the richest people in the world, running one of the largest and most prosperous conglomerates in the world, by following the crowd. He forged his own path. Here are three wealth-building habits that separated Buffett from Wall Street's crowd.
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Key Data Points
1. Patience is a virtue
In today's world, where everyone is looking to get rich fast, Buffett has been a preacher of patience. As the Oracle of Omaha likes to say, Berkshire looks for stocks that the company can hold forever. Some examples in Berkshire's portfolio are Coca-Cola and American Express, which Berkshire owned for decades. In his 2023 annual letter to shareholders, Buffett praised both companies, which have built iconic brands and regularly grow earnings and increase their dividends, saying, "The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable."
Most hedge funds on Wall Street do not practice patience and are measured by their annual returns. As such, these investors pick stocks based on 12- to 18-month time horizons. That doesn't mean these investors aren't skilled in their craft, but Buffett often said that nobody can predict what the market will do tomorrow, next week, next month, or even next quarter. By taking a long-term approach with many stocks in Berkshire's portfolio, Buffett practiced what he's preached.
Image source: Motley Fool.
2. "Be fearful when others are greedy and to be greedy only when others are fearful."
This is one of the more famous quotes from Buffett over the years, and it is often repeated by many an investor. However, it's also less practiced, particularly on one end of the spectrum, in my opinion. Sure, plenty of investors learned to buy the dip in the 21st century, especially with the government and Federal Reserve less willing to let markets go into a tailspin since the Great Recession. However, I find that fewer people are fearful when others are greedy.
While it's true that long-term investors tend to generate strong gains over time, too many investors are often unwilling to accept that the market can be overvalued and experience declines. And sometimes, avoiding a crash -- or at least being more conservative if one is on the horizon -- can be just as accretive to returns over time as a few big winners. Consider what Greenlight Capital's legendary hedge fund manager David Einhorn said in a letter to shareholders last year about Buffett's ability to avoid particularly brutal market downturns:
When the market got too frothy in the late 1960s, he closed his fund. Towards the market bottom in the early 1970s, he reemerged as a stock picker, and then prior to the 1987 crash, he sold everything except a couple of illiquid holdings. Later, he sidestepped the various crises in corporate credit and was well-positioned to capitalize on the 2008 global financial crisis. One could argue that sitting out bear markets has been the underappreciated reason for his outstanding long-term returns.
Buffett seems to have done it again, electing in 2024 to hoard cash and make very limited investments, which included repurchasing far fewer shares of Berkshire than in past years. That strategy has been rewarded this year, with Berkshire's stock soundly beating the market, as investors rushed to Berkshire as a flight to safety.
3. Buffett has always adapted
Another way Buffett zigged when other investors zagged has been the billionaire's uncanny ability to adapt his investing style and philosophy. Sure, Buffett has core investing principles that he will always abide by, but too many on Wall Street only invest in one sector, one type of stock, or one strategy.
Buffett has always had the humility to take a new approach. For instance, Buffett started as a pure value investor. This strategy involved looking for companies struggling but trading at deep discounts, and then purchasing them on the belief that things could turn around or that the assets had a higher intrinsic value than the market price of their stock. Then, Buffett met his pal and longtime partner at Berkshire, the late Charlie Munger, who taught Buffett that buying wonderful companies at fair prices was the better approach. Buffett has now lived by this strategy for many years.
Also, Buffett made much of his career by investing in sectors that many today deem as antiquated, like textiles, banking, and insurance. But throughout history, Buffett has never shied away from an innovative company -- and often, he could spot them first.
Consider Berkshire's investment in the Chinese electric car company BYD in 2008 when the EV movement was just getting underway. Berkshire has now made a fortune on this investment. Or how about Buffett's buying of Apple in 2016, a position that at one point consumed 40% of Berkshire's portfolio. Buffett has never put himself in a box and has always taken the time to learn new sectors, an important lesson for any investor.
