Fonte investment dive: overview and analysis of investment strategies

Together, we will explore key investment approaches—from classic to innovative—and discuss the evolution of strategies that have significantly impacted the investment landscape.

In this article, we will delve into the philosophy of Warren Buffett, one of the most influential investors in the world. We will explore how his investment approaches have evolved over time, which principles have remained constant, and what lessons can be learned from his extensive experience for application in the modern investment context.

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Early years and the influence of Benjamin Graham

Warren Buffett’s first encounter with the world of investments occurred at the age of 11 when he bought shares of Cities Service Preferred for himself and his sister. Despite the volatility of this deal, it taught him important lessons about patience and long-term vision, forming the foundation of his future investment philosophy.

A significant moment in Buffett’s life was his enrollment in Columbia Business School, where he met Benjamin Graham, the "father of value investing." Graham’s focus on thorough analysis, rational decision-making, and the margin of safety resonated with Buffett. Buffett became a devoted follower of Graham’s teachings and even worked for him at Graham-Newman Corp.

Benjamin Graham’s approach to value investing involved buying stocks that appeared undervalued based on fundamental analysis. He advocated a defensive approach to investing, emphasizing the importance of a "margin of safety"—buying stocks at prices significantly below their intrinsic value to account for potential errors in analysis or unforeseen market downturns.

Buffett adopted Graham’s value investing approach in his early years, focusing on finding and investing in "cigar butt" companies—those selling for less than their net current assets. Buffett's early successes reinforced his belief in Graham’s teachings, and his investment strategy revolved around the principles of thorough analysis, conservative valuation, and patient waiting for opportunities.

However, despite Graham's significant influence, Buffett evolved in his approach, gradually shifting from a strict value investing philosophy to a focus on business quality, influenced by his association with Charlie Munger, who later became his business partner and kindred spirit.

Transformation of approach: the influence of charlie Munger and the purchase of Berkshire Hathaway

In 1962, Buffett began buying shares of Berkshire Hathaway, eventually taking control of the company in 1965. This purchase was in line with his old strategy of buying undervalued, but troubled assets, though it was also driven by personal motives related to a conflict with the company’s management. As a result, this acquisition became a lesson for Buffett, as he realized the challenges of managing a struggling textile business, leading him to reconsider his strategy.

During this period, Charlie Munger, his business partner, greatly influenced Buffett by urging him to focus on investing in quality companies with "economic moats," such as the purchase of Coca-Cola shares in 1988. Buffett invested about $1 billion and acquired 6.3% of the company’s shares. At the time, this was Buffett’s largest investment in a single company, underscoring his confidence in Coca-Cola’s business.

Over the decades following the purchase, Coca-Cola remained one of Berkshire Hathaway’s key investments. The company’s stock price increased manifold, bringing Berkshire Hathaway billions of dollars in profits. In addition to the appreciation of the stock, Berkshire Hathaway also received significant dividends from this investment, making it even more profitable in the long term.

Using Berkshire Hathaway as a holding company, Buffett began acquiring other businesses. These were not just "cheap" companies; they were quality businesses with sustainable competitive advantages. This decision embodied the maturity of Buffett’s investment philosophy: a combination of Graham’s value investing principles and Munger’s focus on quality. Since 1965, Berkshire Hathaway’s stock price has grown from $19 to over $400,000, demonstrating the success of this strategy.

Investments in technology

For most of his investment career, Buffett avoided technology stocks. This was not due to a dislike of technology but rather his adherence to his "circle of competence"—he refrained from investing in businesses with which he was uncomfortable, and for a long time, technology was outside that circle.

This reluctance to invest in technology was particularly evident during the late 1990s dot-com boom when many technology companies were overvalued, and Buffett avoided significant losses by staying away from them.

However, in recent years, Buffett surprised observers by making significant investments in technology companies, with his decision to invest in Apple in 2016 being a landmark moment. At the time, Apple was a technology company with strong economic moats: it was a leader in its industry, had a sustainable competitive advantage, generated significant cash flow, and had a loyal customer base. This move proved to be extremely successful: since the purchase, Apple’s stock has increased by over 300%, significantly boosting the overall value of Berkshire Hathaway’s portfolio. Despite making his first major technology investments in his 70s, Buffett demonstrated a willingness to learn and adapt, underscoring the resilience of his success.

The evolution of Buffett’s investment style illustrates the importance of adaptability and continuous learning. His shift from strict adherence to value investing principles to focusing on quality companies with sustainable competitive advantages showed that long-term success requires not only a deep understanding of the market but also the ability to reassess strategies. These lessons remain relevant for all investors seeking sustainable capital growth and the creation of long-term value.