How Warren Buffett Changed the Way Investors Thought of Investing

Warren E. Buffett’s approach to investing is deceptively simple.

“Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices,” he once wrote to shareholders of Berkshire Hathaway, his business conglomerate.

This method — known as value investing — had existed long before Mr. Buffett, now 94, began his career. But no one did it as well — or for as long — as he did. And in the process, he influenced generations of financiers, including Wall Street hedge fund moguls, and promoted the now-common advice about investing for the long term.

Over the 60 years that Mr. Buffett has controlled Berkshire Hathaway, he used value investing to turn a failing textile manufacturer into a $1.1 trillion conglomerate, corporate takeover machine and microcosm of the U.S. economy. One of America’s largest railroads? Owned by Berkshire. The biggest shareholder in American Express and Coca-Cola? Berkshire, too.

Mr. Buffett amassed a Midas-like personal fortune, valued at about $168 billion, and along the way became the avuncular avatar of American-style capitalism who was called upon for help by both corporate executives and government officials in the 2008 financial crisis.

That unparalleled success earned Mr. Buffett millions of admirers around the world. Tens of thousands of them were on hand at Berkshire’s annual meeting in Omaha on Saturday when he declared he finally planned to step down as chief executive.

His announcement was greeted with surprise and then minutes of thundering applause from shareholders — many of whom became millionaires by owning Berkshire stock and hang onto his every financial aphorism.

“I tell people everything I know about investing I learned from Warren Buffett,” Bill Ackman, the billionaire hedge fund manager who was in the crowd, said in an interview after Mr. Buffett’s announcement.

Mr. Buffett has acknowledged that his enormous fortune owes no small debt to pure luck. As he has put it, he won “the ovarian lottery” by being born in the United States, when stock markets were primed to create one of the biggest economic booms in modern history.

He learned about stock picking from a pioneer of value investing, Benjamin Graham, who was his professor at Columbia University. With crucial advice from Charles T. Munger, a fellow Nebraskan who became his longtime business partner, Mr. Buffett turned Berkshire, which he bought control of in 1965, into the best-possible argument for the discipline.

But few lived and breathed the discipline as he did, reading corporate balance sheets for research — and fun — from dawn to dusk.

Mr. Buffett then put that knowledge to work in several ways. Berkshire bought a vast array of successful businesses, including See’s Candy, Fruit of the Loom and the private jet service NetJets. But the most transformative were the acquisitions of insurers like National Indemnity and Geico, which sat on premiums that customers paid but hadn’t yet claimed.

That cash, known as the “float,” became the first financial engine of Mr. Buffett’s deal machine. He used that money, along with profits from the company’s other businesses, to buy what is now a collection of 189 companies. Among the biggest are the BNSF railroad, acquired in 2010 for about $26 billion; and the electricity producer Berkshire Hathaway Energy, purchased in 2000 for $2 billion that was then expanded via its own acquisitions.

As of March 31, that cash pile, which Mr. Buffett has called his “elephant gun,” was nearly $348 billion.

Those who have sat across from Mr. Buffett at negotiating tables over the years have said that he is friendly and courteous — but unyielding when it comes to the numbers. When he is involved, rounds of haggling over price are not in the cards; he is ready to walk away.

“Warren is the most disciplined investor and the clearest thinker I’ve ever known,” said Byron Trott of the merchant bank BDT & MSD, who as a Goldman Sachs deal maker became one of the few bankers Mr. Buffett said he trusted. “His ability to distill complexity into clarity, and to lead with humility and conviction, is unmatched.”

Mr. Buffett also used Berkshire’s cash to buy an array of stocks, with a portfolio that includes American Express, Bank of America, Coke, Chevron and — in one of his most profitable investments — Apple. For those companies, Berkshire’s ownership has tended to be the equivalent of a Good Housekeeping Seal of approval.

And with Berkshire’s huge balance sheet and Mr. Buffett’s unparalleled control, the conglomerate has been able to swoop in at opportune times, buying when others must sell.

Mr. Buffett has been “an extraordinary investor in American Express and a personal friend to me,” Stephen Squeri, the chief executive of American Express, said after the Berkshire announcement.

Another key to his success was holding onto investments for ages — “our favorite holding period is forever,” he has said — letting returns compound again and again, a process that he has compared to a snowball rolling downhill. (A biography that Mr. Buffett cooperated with, but later critiqued, is named after the phenomenon.)

Berkshire’s other advantage for its investors is that it charges no fees, unlike mutual funds or hedge funds. In fact, Mr. Buffett has criticized the size of the fees charged by Wall Street vehicles.

That said, Mr. Buffett has admitted that he made plenty of mistakes over the years. One was passing up opportunities to invest early in technology giants like Amazon and Microsoft, whose businesses he said he didn’t understand at the time.

Still, despite several periods of underperformance, especially in recent years, Mr. Buffett’s track record is astounding. According to his calculations, Berkshire gained 5,502,284 percent from 1964 through 2024, compared with the S&P 500’s 39,054 percent over the same period. His average annual gain was 19.9 percent, while the S&P’s was 10.4 percent.

Mr. Buffett’s approach has inspired countless other financiers, including Mr. Ackman and the mutual fund mogul Mario Gabelli. (Others have sought to copy it more directly, including Sardar Biglari, whose own financial vehicle, Biglari Holdings, shares Berkshire’s initials, website design and investing focus.)

Yet Mr. Buffett transcended business renown and attained actual celebrity, drawing on a folksy Nebraska persona that eschewed the usual trappings of plutocratic wealth. Fans make pilgrimages to his longtime house in Omaha and favorably cite his preferences for mainstream products like Cherry Coke, Dairy Queen Blizzards and See’s fudge. (All, notably, are associated with Berkshire.)

He also became known in pop culture, via cameo appearances on television shows including “All My Children” and “The Office.”

He poked fun at what he saw as the failing of the business world and Wall Street, in particular, regularly deriding professional brokers and traders for turning the markets into a “gambling parlor” that could lure average investors into financial ruin.

He took a more serious stand against Wall Street’s excesses in 1991 when as a major shareholder of Salomon Brothers, he was forced to bail out the investment bank after a trading scandal. It was a low moment in Mr. Buffett’s career.

Called to testify before Congress about Salomon, Mr. Buffett delivered a steely message to the firm’s employees: “Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”

His fame also gave him unique sway in Washington, adding weight to his pronouncements on political and fiscal issues. Mr. Ackman said that policymakers also closely followed Mr. Buffett’s comments and annual letters, and acted on his ideas like treating stock options for executives as a corporate expense.

Though a Democrat who endorsed Hillary Clinton for president and whose name graced an Obama-era proposal for higher taxes on the wealthy, Mr. Buffett advised presidents from both parties. That was most visible in 2008, when he was beseeched by corporate executives and the George W. Bush administration to help the global financial system from melting down.

Mr. Buffett eventually agreed to invest billions in Goldman Sachs and General Electric, moves that Mr. Ackman compared with J.P. Morgan’s efforts to save banks early in the 20th century. True to form, however, he charged both companies a then-astronomical interest rate of 10 percent — a burden executives have said they were willing to pay to gain his imprimatur and survive.

“Warren Buffett represents everything that is good about American capitalism and America itself,” Jamie Dimon, the chief executive of JPMorgan Chase, said after Saturday’s announcement.

While the future of Berkshire appears financially solid, with Mr. Ackman calling the company “the Rock of Gibraltar,” longtime Buffett followers say that it may not retain its seemingly mythical status without its chief architect.

Berkshire’s next chief executive, Gregory Abel, is regarded as an excellent operator of businesses and a savvy deal maker, and Mr. Buffett hired Todd Combs and Ted Weschler as high-level investment executives more than a decade ago.

To Lawrence Cunningham, director of the Weinberg Center for Corporate Governance at the University of Delaware and a shareholder, Mr. Buffett has “given Berkshire the best possible chance for the next chapter.”

But other investors worry that the company will become a bit less special, and won’t revolve around the stock picking that put it on the map. Bill Smead, whose investment firm owns Berkshire stock and who attended this year’s annual meeting, said the conglomerate has already become less ambitious, eschewing potentially transformative deals.

“It’s the end of an era,” Mr. Smead said.