{"id":8669,"date":"2020-05-01T19:24:00","date_gmt":"2020-05-01T23:24:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=8669"},"modified":"2025-09-15T10:17:20","modified_gmt":"2025-09-15T14:17:20","slug":"warren-buffett-value-investing","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/warren-buffett-value-investing\/","title":{"rendered":"Warren Buffett: Value Investing and His Long-Term Strategy"},"content":{"rendered":"\n

How did Warren Buffett become one of the most successful CEOs<\/a> of all time? And what is the Warren Buffet value investing strategy<\/a>? <\/p>\n\n\n\n

Born in 1930 in Omaha, Nebraska, Warren Buffett was the son of a stockbroker and the grandson of a grocery store owner. His early entrepreneurial activities included paper routes and reselling soft drinks. His business grew over time, and so did Warren Buffett’s value investing strategy<\/a>, moving from strictly value investing into and investing style that included more complex stocks for the long term. <\/p>\n\n\n\n\n\n\n\n

Editor\u2019s note: This article is part of\u00a0Shortform\u2019s guide to saving money<\/a>. If you like what you read here, there\u2019s plenty more to check out in the guide!<\/em><\/p>\n\n\n\n

Early Strategy: Warren Buffett’s Value Investing<\/h2>\n\n\n\n

When he was 19, Warren Buffett read The Intelligent Investor<\/em> by Benjamin Graham, which converted him into value investing\u2014buying companies that were cheap relative to their intrinsic value (which was based on the company\u2019s balance sheet). He began investing the profits from his ventures, worth about $10,000 in today\u2019s dollars. <\/p>\n\n\n\n

But in the mid-1960s, Warren Buffett’s value investing strategy began to change. Buffett began deviating from the value method, instead investing in high-quality companies that had a strong competitive profile and long-term prospects<\/strong>. His early investments in this style included Disney and American Express.<\/p>\n\n\n\n

In 1965, Buffett purchased the textile company Berkshire Hathaway, a 100-year-old family business, through a hostile takeover. The company was only worth $18 million in enterprise value and was in a commodity business, but Buffett saw it as a platform to build his investments around. After installing a new CEO, who optimized operations, Berkshire Hathaway had $14 million of profit. <\/p>\n\n\n\n

Buffett used this profit to buy National Indemnity, an insurance company that generated a large amount of float\u2014the value of premiums received before they are paid out as claims. Insurance companies rely on investment returns from float to generate a profit; sometimes years can pass between when premiums are received and when they need to be paid out. In essence, Berkshire was able to receive cash at 3% and invest it at 13%<\/strong>. Buffett used this float to invest in businesses, sometimes buying them outright. His purchases included a newspaper in Omaha and a local bank in Illinois. Warren Buffett’s value investing strategy continued while he also purchased companies outright. <\/p>\n\n\n\n

One example is illustrative\u2014in 1972, Buffett purchased See\u2019s Candies for $25 million, when it had $7 million in book value and $4.2 million in pretax profits. At 3 times book value, it would have been too expensive for Graham, but at 6 times pretax income and strong brand loyalty, it was a reasonable purchase<\/strong>. Over the decades, See\u2019s Candies has not grown unit sales tremendously, but its strong brand allowed it to raise prices consistently. See\u2019s earned a 32% annual return over 27 years and has provided $1.65 billion in cash flow. This shows Warren Buffett’s value investing changing and evolving over time, and incorporating other investing styles. <\/p>\n\n\n\n

New Strategy: High Value for Long-Term Companies<\/h2>\n\n\n\n

Throughout the 1970s and 1980s, Warren Buffett’s value investing strategy changed slightly. Warren Buffett’s investing style thus began investing in high-quality, enduring companies, such as the Washington Post, GEICO, and General Foods. He both made minority investments and purchased companies outright, such as with See\u2019s Candies and the Nebraska Furniture Mart. <\/p>\n\n\n\n

Insurance Float<\/h3>\n\n\n\n

Warren Buffet’s investing style was further honed in the 1970s, as inflation was a common concern among investors. The typical thinking was that hard assets like gold were the best protection against inflation. Buffett saw differently, and developed key components of his investment thesis:<\/p>\n\n\n\n