Learning from Famous Investors Vol. 1: Warren Buffett

Introduction: Why learn from Buffett now?

Social media is overflowing with information on “which stocks to buy.” However, when the market gets volatile, what is truly useful is not stock information, but the foundation of how to think and how to approach it.

In this series, “Learning from Famous Investors,” we will introduce the investment policies, philosophies, and approaches of world-class investors, broken down into forms that individual investors can use in their daily lives.

The first installment features Warren Buffett, known as the “Oracle of Omaha.”

What you will gain from this article

• Understand Buffett’s investment philosophy through 7 principles

• Learn about the mistakes even the Oracle made and the lessons to be learned from them

• Discover the surprisingly simple method that Buffett recommends to average individual investors

• Distinguish between what you can imitate and what you should not imitate

• Create your own investment rules with practical exercises you can start today

I have written this using as little jargon as possible so that even those who have just started investing can read it.

Who is Warren Buffett?

Warren Buffett is an investor born in Omaha, Nebraska, USA, in 1930. He is also called the “Oracle of Omaha” because he has continued to live in his hometown of Omaha.

Berkshire’s stock price has grown at an average annual rate of approximately 20% over the roughly 60 years from 1965 to 2024. The overall US stock market (S&P 500, including dividends) for the same period was approximately 10%. As a result of this difference continuing for 60 years, the final performance of the two has become vastly different.

Despite this, Buffett himself is known for his modest lifestyle, such as living in the same house for many years and eating fast food for breakfast. He has stated that he will donate the majority of his wealth.

With his retirement as chairman in September 2026, Buffett’s roughly 60 years on the front lines of management have come to an end. That is precisely why now is the time to organize the ideas he has been talking about for decades.

The Core of Investment Philosophy: 7 Principles

Buffett’s thinking has been surprisingly consistent in his annual letters to shareholders and at shareholder meetings. Here, I will introduce the 7 principles at the heart of his approach.

Principle 1: Buying a stock is buying a part of a company

Instead of buying and selling based on stock charts, think in terms of “Do I want to be an owner of this company?” Buffett has repeatedly stated that you should only buy companies that you would be comfortable holding even if the stock market were to close for 10 years.

Point: View stocks as “business equity” rather than “numbers that fluctuate in price.”

Principle 2: Play within your circle of competence

Buffett calls the range of businesses he understands well his “circle of competence.” What is important is not the size of the circle, but knowing the boundaries of the circle clearly.

Point: Do not invest in things you cannot explain. Even if something is trendy, if you don’t understand it, it is fine to pass.

Principle 3: Price and value are different things

“Price” is what it is selling for now, while “value” is what the company is inherently worth based on the money it will generate in the future. Buffett emphasizes buying at a price significantly lower than the value.

Point: Think in terms of “Is it expensive or cheap compared to its value?” rather than “Is it likely to go up?”

Principle 4: Maintain a margin of safety

This is a concept inherited from his mentor, Benjamin Graham. To ensure that a mistake in your estimation does not lead to a major loss, you buy with a cushion between the value and the price.

Point: Assume your predictions will be wrong, and only buy at a price that provides a buffer.

Principle 5: Choose companies with a “moat”

Like a moat protecting a castle, he prefers companies that have strengths that are not easily imitated by competitors (such as brand, scale, or high switching costs). A strong brand like Coca-Cola is a prime example.

Point: Think about whether the company will still be chosen 10 years from now.

Principle 6: Hold for the long term and let compound interest work

It is said that the majority of Buffett’s wealth was built after his 50s. This is not just due to talent, but the result of letting compound interest work over a long period of time. Repeated buying and selling erodes the power of compound interest through fees and taxes.

Point: Your greatest ally is time. Look for reasons not to sell.

Principle 7: Stay calm when everyone else is afraid

A well-known teaching of Buffett is to “be fearful when others are greedy, and be greedy when others are fearful.” During the 2008 financial crisis, he made large-scale investments while many others were running away.

Key Point: A market crash can also be an opportunity to buy good companies at a low price. However, this only applies to those who are prepared (with cash and peace of mind).

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From here on, I will explain the mistakes even the ‘Oracle’ has made, Buffett’s daily habits and mindset, and the specific methods Buffett recommends to individual investors. Finally, I have prepared a practical exercise for you to create your own investment rules.

5 Lessons Learned from the Oracle’s Mistakes

Buffett’s greatness lies not only in his successes but also in the fact that he has continued to disclose his mistakes in his own words. In his letters to shareholders, he has frankly admitted his errors many times. Here, I will introduce five representative mistakes and the lessons we can learn from them.

Mistake 1: Buying Berkshire Hathaway out of spite

What happened: In the 1960s, Buffett, who had been buying shares of the textile company Berkshire, had the purchase price he had verbally agreed upon with the management unilaterally lowered in the formal offer. Angered, Buffett bought up the company’s shares to take control. However, the textile business was a declining industry, and it eventually had to be shut down.

His own reflection: In later years, he cited buying a declining business out of emotion as one of his biggest mistakes. He has said that if he had put that money into growing businesses like insurance from the start, the results would have been far greater.

Lesson: Do not make investment decisions out of anger or spite. ‘Not wanting to lose’ is not a reason to invest.

Mistake 2: The acquisition of Dexter Shoe

What happened: In 1993, he acquired the shoe manufacturer Dexter Shoe. However, the business value dropped to almost zero as it was pushed out by cheap overseas products. Even worse, because he paid for it with Berkshire shares instead of cash, the loss multiplied many times over as Berkshire shares rose significantly in value afterward.

His own reflection: He admits it is one of the worst deals he has ever made.

Lesson: Even for a company you think has a ‘moat,’ the competitive environment can change. And when you lose money, consider what you have lost (opportunity cost).

Mistake 3: The British supermarket ‘Tesco’

What happened: While holding Tesco shares, he saw the company’s performance deteriorating. Even so, he did not sell them all at once, and the losses expanded as he sold them off little by little.

His own reflection: He frankly reflects in his letter that his actions were slow even though he noticed the problem.

Lesson: Long-term holding does not mean ‘holding on no matter what.’ If the reason you invested falls apart, admit it quickly.

Mistake 4: Selling all airline stocks (2020)

What happened: In 2020, when air travel demand evaporated due to COVID-19, Buffett sold all the shares he held in major U.S. airlines. Afterward, airline stocks recovered significantly.

His own reflection: He explained that he judged the world had changed. While some view it as having been too early in hindsight, he acknowledged the possibility that his judgment was wrong while clearly explaining at the shareholders’ meeting why he made that decision.

Lesson: Even the Oracle cannot read the future. What is important is not the result, but being able to explain the reason for your judgment.

Failure 5: Missing out on growing IT companies

What happened: He did not invest early in IT companies that later became giants, such as Google and Amazon. Buffett admits it was a missed opportunity, noting that he knew the strength of Google’s advertising through his own insurance business but chose not to buy.

Lesson: It is a sound decision to pass on things outside your circle of competence. However, the circle can be gradually expanded by continuing to learn. Later, Buffett invested heavily in Apple and achieved great success.

What the 5 failures have in common

Buffett is not an investor who never fails. He is an investor who learns from failure and takes action before it becomes a fatal wound. This is something we can also emulate.

Buffett’s approach to investing: 6 habits

Buffett believes that investment performance is determined more by daily habits and mindset than by knowledge. From his lifestyle, we extract 6 ways to approach investing.

Habit 1: Read, no matter what

Buffett says he has spent most of his days reading. Financial statements, annual reports, newspapers, and books. When he was young, he reportedly read every investment book he could get his hands on.

What we can do: Instead of short social media posts, make time to read a good book or documents related to the products you are invested in (prospectuses or investment reports).

Habit 2: Keep your schedule clear

Buffett’s calendar is known for being surprisingly empty. This is to ensure time for thinking.

What we can do: Stop following the market every day and schedule “30 minutes once a month to think about investing.”

Habit 3: Choose to “do nothing”

Buffett often uses a baseball analogy to explain that there are no called strikes in investing. You can let as many pitches go by as you like until an easy one comes along.

What we can do: If you feel anxious thinking “I have to buy something,” consider that feeling itself a warning sign.

Habit 4: Do not invest with borrowed money

Buffett is consistently negative about using debt to leverage investments. This is because no matter how good an investment is, debt can force you out of the game in a single market crash.

What we can do: Do not use margin trading or invest with borrowed money. Secure your emergency fund first.

Habit 5: Keep cash as a “weapon”

Berkshire has held a massive amount of cash in recent years. While cash has a low yield, it serves as ammunition to seize opportunities during market crashes.

What we can do: Do not invest all your money; view holding a portion in cash as “preparation for opportunity” in a positive light.

Habit 6: Do work you love and team up with people you trust

Buffett has said that he enjoys his work so much that he tap-dances to the office every morning. He has also valued working only with people he trusts, starting with his partner Munger.

What we can do: Investing is a “means to enrich your life.” There is no need to be glued to it at the expense of your main job or time with your family.

In a nutshell: Buffett’s approach is to “not rush, not borrow, keep reading, and wait.” It is not about flashy techniques, but the accumulation of simple habits.

What individual investors can and cannot imitate

The surprising method Buffett recommends to “ordinary people”

This is the most important point I want to convey in this article. Buffett himself, a master of picking individual stocks, recommends that most individual investors hold low-cost index funds (investment trusts linked to stock indices) for the long term.

• Instructions for his wife: In his 2013 letter to shareholders, he revealed that he had given instructions regarding the money he would leave to his wife after his death: “90% in a low-cost S&P 500 index fund, and 10% in short-term U.S. Treasury bonds.”

• The 10-year bet: From 2008, he made a 10-year bet that “an S&P 500 index fund would perform better than a combination of hedge funds chosen by professionals.” The result was a landslide victory for the index fund. Even with professional management, high fees significantly eroded performance.

In other words, the most straightforward way to imitate Buffett’s teachings is not through stock picking, but through “low cost, diversification, long-term, and consistency.”

A list of what you can and cannot imitate

“You should just buy Buffett stocks” is a misconception

Berkshire’s holdings make the news every time, but buying them after the fact is a different matter from Buffett’s way of thinking.

• What is disclosed is information that is several months old, and the price is different from what Buffett paid

• You cannot imitate the “reasons” behind why he bought them or when he will sell them

• If you buy a stock without understanding the reason, you won’t be able to hold onto it when the price drops.

What you should imitate is not the stocks themselves, but the mindset and habits.

Applying this to individual investors in Japan

While Buffett’s stories focus on U.S. stocks, his mindset can be applied directly. For example, steadily accumulating index-linked investment trusts with low trust fees (holding costs) that are diversified across a wide range of stocks every month, while also utilizing tax-exempt systems. This can be called the Japanese version of the method Buffett recommends for ‘ordinary people.’ Please decide which index or product to choose based on your own goals and risk tolerance.

Practical exercise you can start today: Write your own ‘Letter to Shareholders’

Every year, Buffett writes a letter to his shareholders, putting his thoughts and failures into words. This exercise is an adaptation of that for individual investors. Write down the answers to the following five questions on paper or in a memo on your smartphone. It will take about 15 minutes.

Exercise 1: My ‘Circle of Competence’

Example: ‘I can explain what a global stock index fund invests in. I cannot explain how the individual stock A, which a friend recommended to me, makes its money.’

Exercise 2: My investment policy (in one line)

Example: ‘Invest 30,000 yen every month into a low-cost global stock index fund for over 20 years.’

Exercise 3: My ‘Things I Won’t Do’ list

Referring to Buffett’s habits, decide on three things you will ‘not do’.

Example

• Do not invest using debt or margin trading

• Do not buy things I cannot explain

• Do not jump on trends immediately after they become popular on social media

Exercise 4: My actions when the market crashes

Example entry: “I will not sell. I will not stop my regular investments. If I have spare cash, I will buy more only up to the amount I have decided on.”

Work 5: My ‘Failure Notebook’

• What investment decisions do you regret so far? Was the cause emotion, lack of knowledge, or delayed action?

Example entry: “Two years ago, I got scared after watching the news and sold. The cause was emotion. As a countermeasure, I will decide on Work 4.”

Read it once a year

Please read and rewrite the letter you wrote at the same time every year (such as your birthday or the end of the year). Just as Buffett has continued to write letters for nearly 60 years, continuing to put your thoughts into words is the shortcut to becoming an unwavering investor.

Checklist for saving

• Wrote down my circle of competence

• Wrote my investment policy in one line

• Decided on 3 things ‘not to do’

• Decided on actions to take during a market crash

• Wrote one failure note

• Added the day to reread it to my calendar

Summary: The ‘Foundation of Investing’ learned from Buffett

If I were to summarize Buffett’s teachings in one word, it would be: **”Invest in what you understand, with a margin of safety, for the long term, and do not be swayed by emotions.”**

• Mindset: Stocks are part of a business. Look at value, not price. Compete within your circle of competence.

• Lessons from failure: Do not decide based on emotion. If the reason falls apart, admit it quickly. Put the reasons for your decisions into words.

• How to engage: Keep reading, clear your schedule, do not take on debt, use cash as a weapon, and wait.

• The answer for individual investors: For most people, holding low-cost index funds for a long time is the most straightforward ‘Buffett style’.

The greatness of Buffett lies not in genius flashes of insight, but in the consistency of adhering to simple principles for 60 years. That is exactly the part we can imitate. Start today by writing your own version of a ‘Letter to Shareholders’ as a practical exercise.

Next Episode Preview

In the next installment of the ‘Learning from Famous Investors’ series, Vol. 2, we plan to feature Charlie Munger, Buffett’s partner who is said to have significantly changed his investment style. Stay tuned.

Reference Materials

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This article is for educational purposes to introduce the thinking of investors and does not recommend the purchase or sale of any specific financial products or stocks. Buffett’s statements in this article are summarized by the author based on published letters to shareholders and news reports. Please make investment decisions at your own risk. Information is current as of October 2026.