Warren Buffett, investing’s philosopher king

By Nir Kaissar

Now that Warren Buffett, the philosopher king of modern investing, has announced that he will step down as Berkshire Hathaway Inc.’s chief executive officer at the end of the year, it’s a good time to marvel again at his career.

Any discussion of Buffett must start with his astonishing track record. He is the greatest investor of all time. No one has even come close to what he has achieved, and I doubt anyone ever will.

Buffett learned his craft from the great Ben Graham, the father of security analysis, first as Graham’s student at Columbia Business School in the early 1950s and later working for him. In the ensuing decades, he expanded on what he learned from Graham, deepening his investing skills and fine-tuning his personal code for work and life that guided his six decades at Berkshire. Investors often talk about applying life lessons to investing; Buffett brought investing to life.

Investing is a notoriously difficult endeavor, and most people who attempt it, lay or professional, are better off in an S&P 500 index fund – an approach Buffett has long recommended. The few who beat the market might do so for a short time or by a modest amount. Legendary stock pickers who are sometimes placed in the same pantheon with Buffett were mostly at the right place at the right time.

Buffett’s record stands alone, a testament to his unusual skill and approach. The market value of Berkshire’s shares grew by an annualized 19.9 per cent a year over six decades from 1965 to 2024, compared with a return of 10.4 per cent a year for the S&P 500 over the same time, including dividends, according to the company. Even after accounting for the maestro’s penchant for value and quality investing, two styles of stock picking that have beaten the market historically, and the leverage inherent in Berkshire’s insurance business that amplifies his investing returns, he still beats the market.

Yet Buffett’s contributions go well beyond what shows up on a performance chart. He has spent decades trying to demystify investing and educate investors, primarily through his artfully written annual shareholder letters, a must read for any aspiring investor. There, he imparts timeless Midwestern wisdom and acknowledges his mistakes in painstaking detail, a practice practically unheard of on Wall Street. His annual letters have become so widely read that many chief executives now pen a letter of their own, but none of the imitators top the original.

Buffett has also quietly bucked the mythical archetype of the all-knowing Wall Street money manager. He never pretends to be omniscient or tries to be. It takes the right temperament to be a great investor, he likes to say, not a high IQ. That means doing the tedious work of carefully evaluating investments and having the courage to act on that effort. He is a celebrated stock picker, but he’s also a discerning allocator of capital who is not afraid to hold cash when opportunities are scarce. He has equally proven brave enough to dive in during a crisis when other investors flee.

The right temperament also means being open to other opinions and being willing to grow. Buffett started out with value investing principles he learned from Graham, and probably did more than anyone to popularize his mentor’s strategy. Later, Charlie Munger, Buffett’s longtime partner, persuaded him to consider the quality of companies alongside their value, which improved Buffett’s performance. That blend of value and quality came to be a widely imitated strategy as well.

Temperament also means understanding that the rewards of investing are inseparable from the occasional setbacks. Many professional money managers are terrified of a down year. Not Buffett. He’s had eleven of them, including four in his first ten years at Berkshire and a harrowing 49 per cent decline during the Nifty Fifty bust in 1974.

Buffett had some advantages along the way. As his fame and wealth grew, he had opportunities that weren’t available to other investors. When banks were in desperate need of cash during the 2008 financial crisis, for example, he made a $5 billion investment in Goldman Sachs Group Inc. that guaranteed him a 10 per cent dividend.

But Buffett’s success also had its drawbacks. As Berkshire grew, it became increasingly difficult to deploy the company’s growing trove, forcing him to look for ever bigger targets. That, in turn, meant there were fewer and fewer targets for him to buy, especially given the long bull market that followed the financial crisis. All of that has made it more challenging for him to keep up with the market since then.

Perhaps most noteworthy about Buffett is the way he did it. He showed that you don’t need a fancy Wall Street address to be a great investor. A quiet and humble desk in Omaha to think and read will do just fine. He also showed you don’t need to be a shark. He preferred to buy companies managed by good, honest and hardworking people and let them go about their business. He was genuinely enthusiastic about their success and he went out of his way to praise them publicly.

“Be kind, and the world is better off,” Buffett, in his classic style, told the Berkshire faithful at the company’s annual meeting on Saturday. “I’m not sure that the world will be better off if I’m richer.” And therein lies another lesson from this rare man: He isn’t the greatest investor of all time despite his philosophy, but because of it.