7 Ways Warren Buffett Changed My Investing Approach

I'm a big fan of Warren Buffett, and have been for many years. It's hard not to be a fan, considering what an amazing track record he has, increasing the value of his company, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), by 5,500,000% (nearly 20% annually) over 60 years. In contrast, the S&P 500 index of 500 of America's biggest companies gained about 39,000% (10.4% annually, on average).

Over many years, I've read up on Mr. Buffett and have soaked up much of his freely dispensed investing advice. I've attended a bunch of his annual meetings, too, listening to him and his longtime business partner, the late Charlie Munger, answer questions for many hours.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Image source: The Motley Fool.

Here are seven ways that Warren Buffett has influenced or changed my investing approach.

1. I'm not a very active investor

When I go through my file folders of trade confirmation reports from my brokerages, I see something interesting: In my early investing years, there were lots of trade confirmations. I remember that in my newfound excitement over investing, my attention would flit from this seemingly compelling stock to that one, and I would often sell one in order to buy another.

Flash forward, and now there have been many years in which I placed five or fewer buy or sell orders. I've learned that jumping in and out of stocks is not a great approach -- especially in those earlier days, when brokerages charged, say, $25 per trade.

2. I try to be contrarian

Buffett is known in part for the many savvy and/or funny things he's said, and one of his most famous utterances is this: "Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."

In other words, when the market has been soaring and is frothy, I try to restrain myself. When it has sunk or stalled, I look around for good values.

3. I pay attention to a stock's valuation

As I just noted, I pay attention to a stock's valuation -- not its price. Remember that a $3 stock can be wildly overvalued and due to fall, while a $500 stock could be a bargain. A stock's price by itself doesn't tell you much. You need to compare it to other numbers, such as the number of shares that exist, the revenue or earnings per share, and so on.

When it comes to valuing stocks, it pays to read up on how to do so and how to understand financial statements such as balance sheets and income statements.

Not everyone has the time or interest to get good at evaluating stocks, so do consider investing in easily available, low-fee index funds, such as the Vanguard S&P 500 ETF (NYSEMKT: VOO). Even super investor Warren Buffett loves index funds. In his will, he has directed that most of the money he's leaving his wife is to go into a low-fee S&P 500 index fund. He even made a 10-year, million-dollar bet favoring index funds -- and won.

4. I seek wonderful companies -- and focus on the company, not the stock

Next, I have taken to heart the way Buffett looks at the company, not the stock. After all, each share of stock is actually a (small) share of ownership in a particular company, and if you're aiming to own it for a long time, as I generally am, it's best to get very familiar with the company.

Consider factors such as how much faith you have in management, what you see as the company's growth prospects, and its main risk factors. Look at its financial health -- such as debt vs. cash -- and its growth rates.

Buffett has noted, "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."

I also pay attention to dividends. As I'm getting older now, I'm trying to turn my portfolio into a cash-generating machine. Berkshire Hathaway, meanwhile, is now collecting many billions of dollars in dividends from its own investments.

5. I am willing to accept a fair price instead of a great price

Next, I keep in mind this Buffett nugget: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

So while I do consider how overvalued or undervalued (or perfectly valued) a stock seems to be, I'm willing to pay up a bit for stocks I'd really love to own. As an example, I have long wanted to own the recycling and trash collection giant Waste Management. It always seemed too expensive, though. But finally, a year or two ago, I just bought some shares -- at what seemed like a modest premium.

6. I try to respect my circle of competence

Like Buffett, I try to respect my circle of competence. For example,

Not respecting this circle of competence has burned me, such as when I bought small stakes in some marijuana companies some years ago. That was a multifaceted fail when it comes to investing like Buffett, because (a) I didn't know enough about the industry, (b) I hadn't properly assessed the stocks' valuations, and (c) I was following the crowd instead of being an opportunistic contrarian.

I'm also not a crypto investor, as I do not understand that very well.

7. I'm a patient long-term investor

Finally, I'm investing for the long haul. It was harder in my early investing days to believe that patience would pay off, but after several decades now, I see some amazing results. Some of my holdings have risen in value by more than 1,000%, and a few more than 5,000%.

If you buy stocks carefully, aiming to hang on for many years, you can eventually start seeing your money grow like gangbusters. It has happened to me -- and, to a great degree, thanks to lessons I've learned from Warren Buffett.

It's not always easy to be as calm and rational as Buffett, which is why so few people have approached his investing record. But learning from the master can only help us all be better wealth builders -- even if we just stick with solid index funds.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $642,582!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $829,879!*

Now, it’s worth noting Stock Advisor’s total average return is 975% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 12, 2025

Selena Maranjian has positions in Berkshire Hathaway and Waste Management. The Motley Fool has positions in and recommends Berkshire Hathaway and Vanguard S&P 500 ETF. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.