One key: Don’t be emotional — at least in matters of business.
“I can’t recall any time in the history of Berkshire that we made an emotional decision,” Buffett said. “You don’t want to be a no-emotion person in all of your life, but you definitely want to be a no-emotion person when making an investment or business decision.”
That strategy has worked for Berkshire Hathaway over the years. The conglomerate has outperformed the S&P 500 from 1965 to 2022 and weathered all kinds of ups and downs in the economy.
Buffett is known for his signature value-oriented investment philosophy, which consists of buying and holding a core set of quality companies over long periods of time. Berkshire’s biggest holdings consist of Bank of America (BAC), Apple (AAPL), Coca-Cola (KO), and American Express (AXP).
“It all comes down to the business,” fellow value investor Jonathan Boyar told Yahoo Finance Live about the investing approach. “Is it a good business? Do they have a product or a service that people want? And can it grow? Is there a large total addressable market? And then it comes down to valuation. Are you buying it at a cheap enough price where you have a margin of safety?”
“So whether you’re analyzing a big cap stock or a small cap stock, it’s the same way,” Boyar added. “Price is critically important as is business quality.”
Charlie Munger, Buffett’s longtime business partner, agreed with Buffett on removing emotion from the decision-making process. At the same time, he noted later on in the meeting that it may be more challenging for value investors going forward.
“I think value investors are going to have a harder time now that there’s so many of them competing for a diminished bunch of opportunities,” Munger said. “My advice to value investors is to get used to making less.”