The key to Warren Buffett’s stock-picking success: He knew tips on how to change his thoughts

On July 3, 2006, Warren Buffett drove to the U.S. Financial institution department in downtown Omaha, walked in, went downstairs, and opened his safe-deposit field. He eliminated a bit of paper, a certificates for 121,737 shares of Berkshire Hathaway inventory. It was value about $11 billion. The cash from the sale of these shares, a fraction of his Berkshire holdings, could be the primary tranche in his program to give away virtually all his wealth.

That financial institution go to was a bookend in Buffett’s life, a fittingly monetary sign occasion within the life story of the person extensively thought to be the world’s biggest investor. He instructed Fortune on the time that it reminded him of a go to to that very same financial institution, then referred to as Omaha Nationwide, nearly 70 years earlier, an occasion that on reflection appears the opposite bookend in Buffett’s monetary life. He was 6 years outdated. His father arrange a financial savings account for him and put $20 in it.

Between these two financial institution visits, Buffett created Berkshire Hathaway, made it America’s largest conglomerate, and have become globally well-known. On Could 3, he signaled the tip of that outstanding run, saying that he would hand the CEO reins to his longtime lieutenant Greg Abel at the end of this year.

Buffett might be leaving with an unmatchable record. He achieved a 19.9% common annual return to Berkshire shareholders from 1965 by way of 2024, or about 5.5 million p.c in complete for unique buyers, together with himself. By the 2020s his wealth would have reached over $200 billion, making him the world’s richest particular person—if he hadn’t given away so much of his stock.

Thus the apparent questions which have transfixed buyers for many years: How did Buffett develop $20 to nicely over $200 billion? Why weren’t others capable of do it? How did he discover the key? What’s the secret?

It’s tempting to search for solutions in the aphorisms Buffett coined so memorably: “Be fearful when others are grasping and grasping when others are fearful.” “It’s much better to purchase an exquisite firm at a good worth than a good firm at an exquisite worth.” “Solely purchase one thing you’d be completely blissful to carry if the market shut down for 10 years.”

He believed them intensely, however they aren’t the important thing to his success. The secret’s, he by no means stopped searching for the important thing. When requested to clarify his success, he typically mentioned it was merely that he was “rational.” It sounds really easy. However rational folks change their beliefs when actuality dictates, and most of us discover doing so excruciatingly exhausting.

Buffett might do it. His maxims sound as if he discovered them engraved on a stone pill, however in actuality he discovered them. He was only a child when he began studying the exhausting method. As a teenage investor he tried technical evaluation, learning charts of inventory costs searching for “candlesticks” or “bearish divergence indicators.” That didn’t work, so he gave it up. He tried what practically each investor tries, timing the market, selecting simply the appropriate moments to purchase and promote. That didn’t work both, so he left it behind.

He even made irrational, emotional choices. At age 11, in 1942, he purchased his first inventory: three shares of Cities Service Most popular for himself and three shares for his sister Doris. (Cities Service was the oil and fuel firm now often called Citgo.) The worth shortly dropped. When it lastly recovered and rose simply above the value he had paid, he offered—and the value saved rising, quickly quintupling. He by no means forgot that he ought to ignore the value he had paid, which he couldn’t change, and focus solely on the corporate’s future. He discovered additionally that if he was going to take a position another person’s cash, he had higher be extremely assured he might do it nicely. His biographer, Alice Schroeder, wrote that Buffett “would name this episode probably the most necessary of his life.”

Years later, as a profitable fund supervisor with way more at stake, he dared to alter his philosophy of investing but once more. At Columbia Enterprise Faculty from 1949 to 1951, Buffett had grow to be a loyal scholar of Benjamin Graham, coauthor of the well-known investing information Safety Evaluation, who suggested shopping for shares solely at excessive discount costs primarily based on monetary ratios. However Buffett’s enterprise associate, Charlie Munger, satisfied him that essentially good companies may very well be value shopping for even when they weren’t screaming bargains. In 1972, Buffett purchased See’s Candies for thrice e-book worth—heretically costly, to Grahamites—and by no means appeared again. See’s stays a fantastic performer for Berkshire.

He by no means stopped difficult his beliefs. He noticed the dotcom bubble of the late Nineteen Nineties for what it was and mentioned so. He wouldn’t spend money on web shares, he defined, as a result of they have been inconceivable to worth. Silicon Valley cheerleaders shook their heads smugly, lamenting that outdated Warren had let the tech revolution cross him by.

When the crash hit, he had each proper to be smug himself, however he later discovered a significantly better riposte. In 2016 he began shopping for into tech royalty: Apple, which grew to be the biggest holding in Berkshire’s inventory portfolio.

Wall Avenue analysts had typically warned that Apple inventory was overpriced. Ben Graham would have disapproved. However Buffett noticed an extremely good enterprise—enormously worthwhile, with an enormous aggressive “moat” round its merchandise. He instructed his shareholders in 2023, “It simply occurs to be a greater enterprise than any we personal.” (Berkshire sold the majority of its Apple shares over the course of 2024, however it remained the corporate’s largest fairness holding on the finish of the 12 months.) At Berkshire’s current annual assembly, Buffett mentioned, “I’m somewhat embarrassed to say that [Apple CEO] Tim Cook has made Berkshire a lot more money than I’ve ever made for Berkshire Hathaway.”

Whereas at all times rethinking tips on how to generate income, Buffett was additionally rethinking tips on how to give it away. For years he had deliberate to begin donating his wealth (“greater than 99%” of it, he mentioned) at his demise by way of a basis he had arrange. However in 2006, at 75, nicely previous the age when most CEOs have retired, he modified his thoughts. He would as an alternative begin donating it instantly, largely to the Invoice & Melinda Gates Basis, with smaller quantities going to his unique basis and the foundations arrange by every of his three grownup kids. (Invoice Gates is now making a outstanding dedication with the assistance of these donations, and with Buffett’s blessing; see “Bill Gates’ $200 billion moonshot: Inside the biggest bet on humanity a philanthropist has ever made“)

Why the shift? As soon as once more he formed his views to suit actuality. He had been a good friend of the Gateses’ for 15 years and admired their work on the basis, which was sufficiently big to deal with the big sums he could be sending to them. They have been additionally considerably youthful than himself. His conclusion, as he defined it to Fortune, was pure Buffett: “What may be extra logical, in no matter you need performed, than discovering somebody higher geared up than you’re to do it?”

That’s what introduced him to his safe-deposit field in downtown Omaha, by himself, eradicating a bit of paper value $11 billion. He would quickly ship it to the Gates Basis. We can’t know his feelings at that second, as he mentioned goodbye to a good portion of his life’s work, however it’s troublesome to consider that he swallowed exhausting or trembled. Extra possible he was smiling.

Three nice pivots

Warren Buffett has been higher than most at altering course—a incontrovertible fact that explains each his success and his longevity.

Giving up “cigar butts”
Buffett started his profession as a disciple of Benjamin Graham, who really helpful shopping for shares solely at rock-bottom costs. However Buffett’s enterprise associate, Charlie Munger, satisfied him that some robust firms have been value shopping for even once they weren’t bargains— paving the best way for a few of Buffett’s finest investments.

Catching up on tech
Whilst he constructed a peerless monitor document, Buffett averted investing in tech firms, arguing that their future worth was inconceivable to estimate. However he finally got here to acknowledge Apple, below CEO Tim Prepare dinner, as a historically nice enterprise with an enormous aggressive “moat.” It grew to become one among Berkshire Hathaway’s top-performing holdings.

Giving to the higher giver
Buffett had lengthy deliberate to offer away most of his wealth after his demise. However the accomplishments of the Invoice & Melinda Gates Basis modified his thoughts—and attracted some $40 billion of his cash. As he instructed Fortune, “What may be extra logical, in no matter you need performed, than discovering somebody higher geared up than you’re to do it?”

This text seems within the June/July 2025 challenge of Fortune with the headline “Warren Buffett’s secret to success: He knew tips on how to change his thoughts.”

This story was initially featured on Fortune.com