Recently, I ran into a former colleague. Michael asked me if I still followed Warren Buffett, adding that it seemed as if the super- investors strategies had changed quite a bit since we worked together.
Virtually everyone in the business world has an opinion on the Buffett, his strategies and his seventy-year investing legacy. Unfortunately, many of those opinions miss the mark of what has made the man, and Berkshire Hathaway, so successful.
Early in his career, heavily influenced by his mentor Benjamin Graham, Buffett hunted for what he famously called 'cigar butts'. This strategy focused on finding deeply undervalued, often struggling companies trading for less than their liquidation value—the cash and physical assets left if the business were shut down.
Just as a soggy cigar butt found on the sidewalk might have one 'puff' of smoke left in it, these companies were unattractive but offered a 'bargain purchase' where that last puff was pure profit.
His initial purchase of Berkshire Hathaway itself was a classic cigar butt—a dying textile mill trading below its working capital. Other examples included Sanborn Map and Dempster Mill Manufacturing, where the value lay in the assets rather than the business operations.
Buffett eventually realized this approach was difficult to scale and that 'time is the enemy of the mediocre business'.
The most significant turning point in Buffett’s philosophy came through the influence of his partner, Charlie Munger, who persuaded him it was better to buy a 'wonderful business at a fair price than a fair business at a wonderful price'. This led to a decades-long focus on powerful consumer brand names with 'moats'—durable competitive advantages.
The 1972 acquisition of See's Candies proved transformational. It taught Buffett the power of strong brands which provided pricing power; the ability to raise prices annually without losing customers.
This revelation paved the way for massive investments in Coca-Cola, American Express, and Gillette. Buffett realized a brand people loved created a psychological connection—a moat that protected high returns on capital more effectively than any physical asset.
This strategy worked phenomenally well for several decades allowing Berkshire Hathaway to grow exponentially.
In the most recent chapter of his career, Buffett found his highest returns by identifying companies the market labeled as 'tech,' but which he recognized as ultimate consumer goods businesses.
His massive investment in Apple was not a bet on semiconductor innovation, but on the iPhone as an indispensable consumer product.
Buffett views Apple as a consumer company with a powerful ecosystem and high switching costs. To him, it is the modern equivalent of See’s Candies or Coca-Cola— a brand so integrated into daily life that customers are remarkably price-insensitive.
By treating Apple as a consumer staple rather than a volatile tech stock, Buffett captured the massive compounding of a high-margin, capital- light business, leading to what many consider the single greatest investment in Berkshire’s history.
Throughout these three stages, Buffett never changed the goal. Whether he was picking up a discarded textile mill for its scrap value or buying billions in Apple stock, he was always looking for the most efficient way to generate high returns. His genius lay in realizing that as the world changed, the best place to find those returns moved from the balance sheet to the brand, and finally to the digital lifestyle.
What can be learned from this for investors and business people today?
Be a constant learner. Buffett refined his process as he was the consummate student and learner. But he didn’t abandon his discipline. Rather, business and industry changed and he saw this as an opportunity.
Be disciplined and patient, yet flexible. As business and industries change, many shooting stars will catch your attention. It will take time to determine who is predictable and consistent in the latest business revolution.
As business and industry changed, so too did the opportunity set that offered maximum return on invested dollars. Throughout the entirety of Buffett’s career, that has always been the goal. Maximize return on investment. Although Buffett’s biggest winners may have changed over time, this concept never did.
Dave Sather is a Certified Financial Planner and the CEO of the Sather Financial Group, a “fee-only and fiduciary” strategic planning and investment management firm
