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For years, I struggled with how to approach the stock market. Every flashy stock tip, hyped-up IPO, or headline-grabbing article would catch my attention, and I’d jump in without truly understanding what I was investing in. It was frustrating and, frankly, unprofitable. Then I discovered Warren Buffett’s approach, and it completely transformed how I think about stocks.

Buffett doesn’t chase trends or gamble on the unknown. His strategy boils down to three timeless principles:

1. Understand the business,
2. invest in companies with a stable track record, and
3. focus on long-term growth potential.

Once I embraced this mindset, investing stopped feeling like a game of chance and started feeling like a path to lasting wealth.

He Must Understand Them

Why is it important to understand the businesses you invest in?

Investing is fundamentally about predicting the future. Forecasting a company’s revenues, costs, profits, cash flows, and expenditures. That’s no easy task, and it becomes nearly impossible if you don’t fully understand the business you’re investing in. Without that understanding, you’re left guessing rather than making informed decisions, increasing the risk of costly mistakes.

How is Buffett able to understand his investments so well?

The answer lies in his disciplined approach to staying within what he calls his “circle of competence.” Buffett focuses on industries and businesses he thoroughly understands. This often means investing in companies with straightforward, easy-to-grasp business models—like beverages, furniture, ice cream, newspapers, and railways. In other cases, he dives deeply into industries like banking and insurance, learning everything he can before making an informed investment. By limiting his focus to what he knows best, Buffett minimizes risk and maximizes his ability to make sound, long-term decisions.

He doesn’t buy business he isn’t sure about. He is famous for having never invested in technology stocks. He could have invested in Intel, IBM and Microsoft. But he stuck to his guns. During the dot-com bubble, as the Nasdaq Composite Index surged by 400% from 1995 to its peak in March 2000, Buffett faced criticism for his conservative strategy. Critics claimed he had lost his touch, as Berkshire Hathaway’s performance lagged behind the tech-driven market. However, when the bubble burst, leading the Nasdaq to plummet by 75% between 2000 and 2002, Berkshire Hathaway’s stock rose by 30% during the same period, vindicating Buffett’s disciplined investment approach.

It Must Have a Stable Track Record

Warren Buffett looks for businesses that will stay successful and profitable far into the future. While predicting the future is never easy, he believes a stable track record is often a good sign of what’s to come.

If a company has been able to grow and make profits for the past 50 years, there’s a good chance it will keep doing so for the next 50. You can see this in the companies Buffett invests in, many of which have been around for a long time:

By sticking to companies with long histories of success, Buffett focuses on businesses that have already proven they can survive and thrive over time.

Buffett avoids companies that are changing their business models because their previous plans didn’t work. He believes that major changes often come with major risks. It’s during these times of transition that businesses are more likely to make big mistakes, and that uncertainty is something Buffett prefers to steer clear of.

It Must Have Long Term Growth Potential

Buffett only invests in companies that can earn him high returns on his capital for many years to come. To achieve this, the company must be able to avoid disruption. The key to avoiding disruption is having a durable competitive advantage—or what Buffett famously calls a “moat.”

A business that has a moat can raise its prices without fear of losing customers. This is especially valuable during periods of high inflation. When its costs are rising it just raises its own prices and customers keep on buying either because they have to, or they love the product so much they think it's worth it.

So, what is a moat? There are many types of moats, but Buffett’s favorite is a strong brand. A brand can build loyalty, symbolize status, or serve as a mark of reliability.

Take Coca-Cola, for example. In blind taste tests, people often prefer the taste of Pepsi. But once the cans are shown, Coke tends to win. This is largely thanks to its powerful branding, cultural influence, and consistent image over the years. People associate Coke with positive memories, which often tips the scale in its favor when they know what they’re drinking.

A lack of a durable moat is one reason I believe Buffett avoids investing in technology. While a tech company might gain a competitive edge by creating a better product, that advantage often doesn’t last—or it requires massive, ongoing investments in research and development (R&D) to maintain. Without consistent R&D, competitors can quickly create something better, or an entirely new product can emerge, making the old one obsolete.

Take music as an example: cassettes replaced vinyl records, CDs replaced cassettes, digital downloads killed CDs, and streaming overtook downloads. In tech, the landscape changes too fast. Buffett prefers products that don’t change much over time. For the past hundred years, people have wanted Coca-Cola, relied on razor blades, and needed banks and insurance—and they will for the next hundred years too.

Buffett avoids investing in commodity businesses. Traditional commodities include things like wheat, oil, gas, and orange juice. But Buffett takes it a step further—he defines any product that can’t set itself apart from the competition as a commodity.

In his eyes, industries like airlines, automobiles, banking, and even insurance often fall into this category. If customers choose a product simply because it’s the cheapest option, it’s likely a commodity. For Buffett, these businesses lack the pricing power and competitive advantage he looks for in long-term investments.

Warren Buffett’s investing philosophy is rooted in timeless principles that emphasize simplicity, stability, and durability. By focusing on businesses he understands, companies with proven track records, and those with long-term growth potential, Buffett avoids the pitfalls of chasing trends or gambling on uncertain ventures.

His approach reminds us that successful investing isn’t about predicting the hottest stock or the next big innovation. It’s about finding businesses with staying power—those that can weather economic storms, adapt to change, and remain profitable for decades to come.

For years, I struggled to navigate the stock market, but embracing Buffett’s method has taught me the importance of patience, discipline, and focusing on quality. Whether it’s a strong brand, a durable moat, or a company with consistent performance, these are the traits that can transform investing from a gamble into a path toward lasting wealth.

In a world full of noise and hype, Buffett’s philosophy stands out as a reminder to invest wisely, stay within your circle of competence, and prioritize businesses that will stand the test of time.