Berkshire Hathaway
Made a fortune by buying understandable businesses at sensible prices and then doing almost nothing for decades.
Photograph: USA International Trade Administration · Public domain · Wikimedia Commons
Buffett began investing young, studied under Benjamin Graham, and took control of Berkshire Hathaway — then a failing textile company — in the 1960s, gradually converting it into a holding company for insurance and operating businesses.
The method is deliberately unexciting: buy businesses you understand, with durable competitive advantages, run by people you trust, at a price that leaves a margin for being wrong. Then hold them.
The part most people miss. Insurance premiums are collected before claims are paid, so an insurer holds a large pool of other people's money in the meantime. Berkshire used that float as low-cost capital to buy businesses. The structure, not the stock-picking alone, is a large part of the story.
His annual letters to shareholders are among the clearest business writing available anywhere, and they are free.
His 'circle of competence' idea: the size of the circle matters far less than knowing where its edge is. Businesses fail by expanding into things they do not understand far more often than by being too narrow.
A durable advantage — brand, switching costs, low cost position, network — that protects returns from competition. It is [VRIO] in plainer language and it is the question to ask about your own business.
Much of the performance comes from not trading, not diversifying pointlessly and not reacting. Applied to a business: constant strategic change usually destroys more value than it creates.
He has described several investments as mistakes in his own letters, including the original purchase of Berkshire Hathaway's textile business, which he has called a serious error. Dexter Shoe, bought with Berkshire stock, is the one he calls his worst.
He avoided technology for decades on competence grounds and missed a generation of returns as a result — a defensible discipline that was also expensive. And Berkshire's structure and float are not available to ordinary investors, so the returns are not straightforwardly replicable.