Warren Buffett has been a consistently successful investor for an astonishing seven decades. You might think the reason for his company's impressive returns is the thorough research he does before investing. Or the fact that he consistently takes the long view, betting on companies that have long-term potential for high earnings. And you'd be right, those are both big reasons for Buffett's success. But he also has a character trait that has helped him stay on top in a rapidly changing world, and it's not one most business leaders value. In addition, he's willing to admit he's been wrong, something few leaders ever do. What's even more important and rarer is that he's willing to rewrite his own rules, even rules that helped him succeed in the past, to adapt to changing times and new realities.

Business Philosophy and Investment Strategy

Warren Buffett’s business philosophy is one of the important outcomes of his interest in the business. His interest in business drove him to analyse America’s businesses and other businesses across the world. Based on this analysis, he adopted a value investing business philosophy. Value investing involves buying stocks that trade for less than their intrinsic value. The intrinsic value of stocks includes an objective value contained in the stocks and is often undermined in the market value of such stocks. Various methods can be used to assess the intrinsic value of shares.

These evaluation methods use residual income, discounted cash flows, and dividend streams to arrive at the intrinsic values of the stock. Using his sound business knowledge and skills obtained from his educational preparation and experience, Buffett is able to pick stocks whose market values are less than their intrinsic values or underestimated in the stock market.

Because the market overreacts to events and news, the stocks of companies with significant growth and revenue potentials are often under-valued. For instance, the market value for a company’s stock is likely to plunge following the news of the exit of its long-term CEO. Correspondingly, the market value of several companies’ stock reduced significantly from the onset of the COVD-19 outbreak following the adverse impacts of the pandemic on businesses. Therefore, people tend to overreact to news about companies in ways that do not reflect the market value of their stocks realistically.

As part of his investment strategy, Warren Buffett picks companies with a stock whose market values are undermined in the stock market. Such companies have significant financial potential when assessed based on their history and ability to turn things around in the long term. Buffett realized that people tend to overreact to bad or good news in ways that affect the market value for stock. However, such market values do not reflect the true potential of companies.