Warren Buffett’s Favorite Money-Making Strategy is ‘Purchasing Fractional Interests in Easily-Identifiable Princes at Toad-Like Prices’
Warren Buffett, chairman and CEO of Berkshire Hathaway (BRK.B) (BRK.A), is celebrated for his candid reflections on both his successes and mistakes in the world of investing. In his 1981 shareholder letter, Buffett offered a characteristically honest assessment of his experience with corporate acquisitions, stating, “We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly, our kisses fell flat. We have done well with a couple of princes — but they were princes when purchased. At least our kisses didn’t turn them into toads. And, finally, we have occasionally been quite successful in purchasing fractional interests in easily-identifiable princes at toad-like prices.”
This quote encapsulates a philosophy that has come to define Buffett’s investment approach: the preference for acquiring high-quality businesses — “princes” — at reasonable prices, rather than hoping to transform struggling companies — “toads” — through managerial intervention or through optimism alone. Buffett’s metaphor draws from the classic fairy tale, but its lesson is grounded in decades of real-world investing experience. It boils down to a simple idea: buy high-quality companies and let them continue to grow. Expanding on that core principle, it’s better to buy a high-quality company at an “ok” price than a bad company at a great price, because the quality company will ultimately deliver greater value, while the lower-quality company is likely to continue its decline.
Early in his career, Buffett was known for seeking out so-called “cigar butt” investments — companies trading at deep discounts to their intrinsic value, often because of operational or industry challenges. While these bargains sometimes yielded quick profits, Buffett found that time was rarely on the side of a mediocre business. As he and his longtime partner, the late Charlie Munger, evolved Berkshire Hathaway’s strategy, they shifted focus toward companies with durable competitive advantages, strong management, and the ability to compound earnings over long periods.
Buffett’s admission that his historical attempts to “kiss toads” have rarely produced miracles is supported by both his own track record and broader market evidence. Numerous studies and post-mortems on corporate acquisitions have shown that turnarounds are difficult to execute and often fail to deliver the hoped-for returns. By contrast, investments in well-run, fundamentally sound businesses — especially when purchased at attractive prices — have consistently been the cornerstone of Berkshire Hathaway’s long-term success.
The final part of Buffett’s quote — highlighting the success of buying “fractional interests in easily-identifiable princes at toad-like prices” — speaks to another key element of his philosophy: the willingness to invest in minority stakes in great companies when full ownership is not feasible or prudent. This approach has led Berkshire to build substantial positions in firms like Coca-Cola, American Express, and Moody’s, generating significant value for shareholders without the risks associated with full takeovers.
Buffett’s reflections remain highly relevant in today’s markets, where the allure of turnaround stories and high-premium acquisitions continues to tempt corporate leaders and investors alike. His experience serves as a reminder that discipline, patience, and a focus on intrinsic business quality are more reliable paths to enduring success than the hope of miraculous transformations. In a world full of both princes and toads, Buffett’s advice is clear: invest where the odds — and the underlying economics—are in your favor.
On the date of publication, Caleb Naysmith did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com