?? 2 Main Pillars of Warren Buffett’s Investment Philosophy

In 2003, 17 analysts met Warren Buffett privately, where he gave advice to the young group.

One of them asked Buffett, “How can we achieve success like yours, but at a faster rate?”

Buffett replied, “That’s not possible, but I’m giving you 2 points, and if you hold onto these, you’ll hopefully achieve great success.”

Let's discuss those two points one by one:

[1] Never Bet Against America

Buffett summarized his thesis as “American Capitalism will always win.”

But why did Buffett reach this conclusion?

It’s because he understood the real engine driving the U.S. economy.

What is this engine?

It’s the immigrant population.

How?

Immigrants are true entrepreneurs, building everything from nothing.

Remember, the U.S. was once a land with native people. After its discovery in the late 15th century, Europeans gradually took over. Those who struggled in Europe left the continent in search of a better life. Today, 51% of the U.S. population has German ancestry. Essentially, the U.S. was built by immigrants.

Immigrants are resilient, with a hunger for success. They leave everything behind and start from scratch, often working harder than any other group.

Take Elon Musk, the most successful businessman in the U.S. today—he’s from South Africa.

Or consider Kamala Harris, one of the most influential figures in America, with roots in India and the Caribbean.

Let’s look at academia: Neil Ferguson, a highly respected professor, is originally from the UK.

In corporate America, the vast majority of executives in top positions are immigrants.

Ninety-nine percent of billion-dollar startups have at least one immigrant founder.

Yes, immigrants play crucial role in the U.S. economy.

The U.S. became the global hub for manufacturing and technology in the 1880s and has held this position ever since, powered by immigrants.

Let’s move to the next point.

The second important factor is trust.

What do I mean by trust?

It’s the trust in public institutions.

Let me clarify.

The financial market is a place where you, as an investor, are a third party. Management runs the business (first party) and conducts business with suppliers and customers (second party).

As an investor, you don’t have an active role; you simply hope management will protect your interests by running the business well. Management should ensure suppliers provide good quality materials, treat employees well, and prioritize customer satisfaction.

Only then can you, the investor, expect high returns.

So, every layer of the market is connected by trust.

What if that trust is broken?

Who would hold bad actors accountable?

Who will enforce the law?

Will there be rule of law and justice in the system?

In the U.S., the answer is yes—there are strong public institutions that people respect, institutions that enforce justice. The U.S. is the best place globally at maintaining trust, which is the first thing investors care about before putting money in the market.

This is why international capital rarely flows into countries like Zimbabwe, Lebanon, or Venezuela.

The Geographic Advantage

Geography is another factor.

Consider that the U.S. has 100 years of consistent market data.

The U.S. has grown over the past 150 years, despite two world wars that had little impact on American soil.

The U.S. is the only major power that hasn’t been directly attacked by a foreign enemy. Geography makes invasion nearly impossible, with two vast oceans providing natural protection. Neighboring countries are incapable of invading the U.S., so it has enjoyed 150 years of continuous growth.

These are the reasons Warren Buffett advises to “never bet against America.” And he practices what he preaches.

How?

Look at Berkshire Hathaway—the most successful asset management firm in history.

12 exceptional investments have defined its success.

Without these investments, it would be just another average firm.

Let’s look at Berkshire’s 12 outstanding investments:

- Apple

- Coca-Cola

- American Express

- Burlington Northern Santa Fe (BNSF)

- GEICO

- Bank of America

- The Washington Post

- Moody’s

- Wells Fargo

- P&G

- DaVita

- Gillette

11 out of these 12 businesses are based in the U.S. and operate under U.S. jurisdiction.

Buffett has truly “bet on America.”

So, you understood America; let's now move to Buffett's 2nd piece of advice.

[2] Humans Will Always Misjudge Every Asset Under the Sun

What does Buffett mean by this?

Humans are emotional in the short term but become rational in the long term.

Emotions drive prices to extremes, whether high or low.

If this doesn’t make sense, here’s a classic example:

The S&P 500 is the world’s most followed index, and Meta (formerly Facebook) is one of its significant stocks.

In November 2022, Meta’s stock price was down about 75% from its peak in September 2021.

Since then, it’s risen about 525%.

How can such extreme price movements happen to one of the world’s most followed stocks?

How can Meta fall 75% and then rise 525% within 3 years?

If you study a business patiently, like your favorite sports team, you’ll understand it well enough to remain rational while others act emotionally and irrationally.

Take Tesla as another example. In the last 52 weeks, Tesla’s lowest price was $138, while the high was $273—a difference of $145, more than a 100% swing.

Again, how can one of the most followed stocks vary so much in one year if people value it rationally?

The answer is: they don’t.

This is not just true for a few stocks but for most publicly traded companies.

Check the S&P 500: the average 52-week price difference is 40%, and it’s even higher for the Nasdaq 100 and Russell 2000.

If you truly understand a business, stay curious and observant. Eventually, you’ll have the opportunity to buy its stock at a reasonable price.

Human nature doesn’t change, which is why this cycle will continue.

These 2 principles form the core of Warren Buffett’s investment philosophy.

He has practiced them and achieved phenomenal results.

The choice is yours to follow them or not—I simply invite you to think.