You Can Easily Duplicate Warren Buffett's Best Investment Tactic

Warren Buffett is one of the most famous investors of all time. Indeed, the company he runs, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is more like a mutual fund than a traditional corporation. While he doesn't talk about his investments or his investment approach very often, the man known as the Oracle of Omaha does provide some insights when he pens his company's annual shareholder letter.

In 2024, he pointed out what might be one of the biggest tactics he employs to build wealth. Here's what it is.

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What does Berkshire Hathaway do?

To fully understand why Wall Street holds Warren Buffett in such high regard really requires you to understand Berkshire Hathaway. Buffett is the CEO of that company, which is often lumped into the finance sector. But that's not a great fit because, in reality, Berkshire Hathaway is a giant conglomerate. Even that isn't enough to describe the company, though.

Image source: Getty Images.

Most companies do one thing. Conglomerates usually do a few similar things. Berkshire Hathaway's business spans multiple industries. For example, Berkshire Hathaway has subsidiaries that sell furniture, cars, and houses. Other subsidiaries make products like paint, chemicals, manufactured houses, and specialty parts. Still other businesses operate utilities, trains, and pipelines. While most companies can summarize their business in a few paragraphs, the business description for Berkshire Hathaway runs 23 pages long in its annual 10-K.

The eclectic makeup of the company's business is directly related to the way in which Warren Buffett invests. He likes to buy good companies, either in whole or in part, when they look attractively priced. The next step, however, could be the most important one, and Buffett highlighted it specifically in the company's 2024 annual report.

"Berkshire almost never sells controlled businesses"

There are really two investment portfolios within Berkshire Hathaway. One is filled with public stocks that the company can easily buy and sell. The other is filled with the companies Berkshire Hathaway owns directly, which are controlled businesses. In 2024, a lot of media highlighted the sales Berkshire Hathaway made within its public portfolio. But in the company's annual report, Buffett made sure to highlight that these sales were actually pretty minimal if you look at the entire portfolio of controlled and public companies within Berkshire Hathaway.

There's one line that deserves much more attention than the stock sales: "In reality, Berkshire almost never sells controlled businesses unless we face what we believe to be unending problems." The interesting thing about that statement is that it could be taken to imply that Berkshire is actively trading its public stock portfolio all the time. But that simply isn't true. Buffett has a core portfolio of public stocks that are rarely traded, including such iconic names as Coca-Cola (NYSE: KO) and American Express (NYSE: AXP).

KO data by YCharts.

The purpose of holding on to the stocks he owns and the controlled companies Berkshire buys is fairly simple. Buffett wants to benefit from the long-term growth of the underlying businesses. The above chart shows what that can lead to on the stock front for investors who follow Buffett's lead.

The chart below, however, is the real key. It shows that both Coca-Cola and American Express have been growing their revenues, and thus their businesses, over time. That's what ultimately drives earnings and stock prices higher. Clearly, every stock doesn't produce a stock graph like the ones for Coca-Cola and American Express.

KO Revenue (Annual) data by YCharts.

However, if you find a good company to buy and the business continues to perform well, Buffett's "almost never sell" mentality seems like a pretty easy-to-duplicate investment tactic. All you need to do to use it is, well, nothing. That can be quite difficult on Wall Street, given the mercurial nature of investors. When a stock drops, it is hard to resist the temptation to sell along with the crowd. Buffett's long-term success as a buy-and-hold investor suggests that this is the wrong decision if the company's business remains attractive and growing.

Average intelligence is all that's needed

Buffett has often highlighted that investors only need average intelligence to be a successful investor. More important than intelligence, according to the Oracle of Omaha, is having the proper temperament. In effect, he's telling investors that having the fortitude to stick with a good company for the long term requires the ability to do nothing when everyone else is doing something.

Doing nothing (or sticking it out with a well-run and growing company even during the hard times) is a tactic that everyone can employ, even if it requires a little extra practice on the willpower front.

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American Express is an advertising partner of Motley Fool Money. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.