Farewell to Buffett: five lessons from the Oracle

One of my first jobs in the City was to tag along to interviews with fund managers, make the tea and write up a profile of their investment philosophies. Of the 100 or so I met, and the tens of billions under their collective wing, it was rare to go the whole conversation without at least a passing reference to Warren Buffett. Star manager Terry Smith made no buts about sticking to a fundamentally Buffett-led approach and Nick Train went even further, saying The Warren Buffett Way was required reading for all new Lindsell Train recruits.

The Oracle of Omaha’s name is synonymous with a patient and disciplined approach - sometimes literally, as in Sanford DeLand’s UK Buffettology fund. So, while announcing his retirement at what will be 95 years of age wasn’t unexpected, it will still be a poignant moment for an investment community used to having Warren as a consistent source of wisdom amid whatever market madness ensues.

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With the steward of arguably the most successful investment process ever set to take a back seat at Berkshire Hathaway, it’s worth reflecting on some of his folksy insights that informed such an iconic investment career.

Here are five lessons from Buffett that all investors would do well to keep in mind:

1. Compounding can be mindboggling

We can get a bit flippant about the snowball effect of compounding but Buffett is proof of why it is so vital to give your investments the opportunity to grow and reinvest their profits over time.

Read more: Compound interest: the frenemy you need to know

Case in point, Berkshire Hathaway’s (BRKA) compounded annual gain from 1965 to 2024 was 19.9% versus the 10.4% of the S&P 500 index. Nearly doubling the return of the index every year looks even more impressive when you realise that means an overall gain for the stock from 1964 to 2024 of 5,502,284%, against the S&P’s 39,054%. (Berkshire Hathaway annual report, 2024).

Discrete calendar year performance

As at 12 May 2025. Source: Koyfin. Total return basis, in local currency. Past performance is not a reliable guide to future results.

Time in the market clearly beats timing the market, as the old adage goes, but think about the fads and trends that could have had Buffett bouncing between assets over the years. Leveraged buyouts, the hedge fund boom, high frequency trading, the dot.com hype, special purpose acquisition companies (SPACs), memecoins - the list goes on but away from all of it Buffett stuck to the companies whose revenues and growth he could measure and largely predict from one year to the next.

2. Look for the economic moat

This segues nicely into the next principle Buffett swears by. ‘Buy and hold’ doesn’t just mean you can benefit from buying any stock out there and sitting on your hands. Instead, he has always looked for an economic moat in the companies he invests in. The ‘moat’ here refers to a durable advantage that is so big it dissuades competition and does a good job at preventing rivals from stealing market share. Firms with a wide moat can often raise prices without sacrificing customer loyalty, they can weather economic downturns better than competitors and they can maintain and grow profit margins over time.

Coca-Cola’s brand is a good example of a moat that Buffett has prized enough to warrant holding the stock for decades. Yes, there are alternatives but, for the Sage, nothing dominates the category quite like Coke. He also loves a cherry Coke, which helps.

"If you gave me $100bn and said take away the soft drink leadership of Coca-Cola, I’d give it back to you and say it can’t be done." Warren Buffett

It’s more than just identifying popular brands though. A powerful moat can bolster profitability and financial resilience, letting a company compound its earnings with minimal volatility.

3. Know your circle of competence

Returns aside for a second, Buffett has the investment world’s respect thanks to his humility and willingness to pass up the latest hot stocks if he can’t understand them. This isn’t to say he can’t wrap his head round the investment case - he’s a balance sheet wizard, after all. Rather, if the future is murky for a sector, or runs on nothing but promise, he’s happy to sit that trade out even if it means watching others profit in the short term. He passed on Apple for years until he saw it move from challenger to dominant behemoth. Building his stake from 2016, Berkshire’s holding is now worth around $59.5bn, even with a considerable stock sale last year.

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The point here is to lean into sectors and stocks you know about, are interested in and whose business models you understand. Being able to have a surface-level opinion on a wide range of stocks might work in polite conversation but, when it comes to investing, knowing a lot about a little is arguably worth more.

4. “Be fearful when others are greedy, and greedy when others are fearful.”

It’s hard to hit the buy button when everyone else seems to be selling. It’s more than just buying the dip though and reflects Buffett’s unwavering focus on snapping up good value when the market offers it. Often, when markets are soaring and investors are feeling proud of themselves, assets tend to be overvalued - in which case he considers selling. On the flipside, when the headlines are predicting the end of the world, assets can trade below what he sees as their rational value. If you can ignore the noise and focus on any mispricing created by fear or greed, you might be able to use volatility to your advantage.

Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” Warren Buffett

5. Cash ≠ trash

Holding cash and investing it can be a tricky balance to strike for a lot of investors. Hold too much and you end up falling victim to inflation while you wait to jump into the market. Hold too little and you have no fire power when an attractive buying opportunity arises. Not only has Buffett managed this well but, as his cashpiles have ballooned over the years, he’s had fewer and fewer companies to invest in.

With upwards of $350bn sitting on the sidelines at the moment, Buffett can’t buy a lot of smaller stocks because a) even a small allocation could buy out an entire company, which he probably doesn’t want to do and b) avoiding this means investing such a small sum that any returns aren’t likely to matter to the overall portfolio.

It means he has had to be disciplined in allocating big chunks where he sees value and keeping his powder dry where there isn’t any. Buffett still looks for a low-risk way of gaining interest on his cash, like government bonds, but the main takeaway here should be that we have to find a way to get that balance right in our own investment journeys. Some like to keep a small portion of their portfolio in cash to take advantage of mispricings - just make sure this doesn’t mean your subs bench stays full forever.

The good thing is we have more choice than Buffett as we can look up and down the market cap scale without the threat of accidentally buying the whole firm. While that doesn’t mean chucking money at anything we see, if we’re as disciplined as he is we can look for value and pounce on it especially when broader fears make it all look worse than it is.

Sources: Berkshire Hathaway

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.