Five Core Secrets to Buffett's Success in Investing in U.S. Stocks!

1. Adhere to the "Circle of Competence" Principle: Only Invest in Companies You Truly Understand

Buffett never chases hot trends nor invests in industries he doesn't understand. Throughout his life, he has heavily invested in Coca-Cola, American Express, and Apple because these companies have simple business models, clear cash flows, and strong brand moats. He once said, "The key to investing is not how much you know, but how well you understand what you don't know." At the 2025 shareholders' meeting, he reiterated that even amid the surging AI wave, he still does not invest in chip design companies, simply because he "cannot assess their long-term technological iteration success rate."

2. Seek "Economic Moats": Competitive Advantages Are the Foundation of Long-Term Returns

Buffett compares companies to castles, with moats being the trenches protecting them—possibly brand loyalty (Coca-Cola), cost advantages (GEICO insurance), network effects (Apple ecosystem), or regulatory franchises (railroads). He doesn't buy "cheap companies," but rather "expensive but irreplaceable companies." In his 2024 letter to shareholders, he pointed out, "A company with a wide moat can continue to create value even if management is mediocre."

3. Buy with a "Margin of Safety": Price Determines Investment Success

The essence of value investing is to buy $1 worth of assets for 50 cents. Buffett follows Benjamin Graham's "margin of safety" principle—buy-in prices must be well below intrinsic value to buffer against judgment errors and market fluctuations. During the 2008 financial crisis, he bought Goldman Sachs preferred shares at $100 per share, with a 10% dividend and warrants, exemplifying a typical margin of safety operation.

4. Hold Long-Term: Time Is an Ally of Excellent Companies

Buffett's average holding period is "perpetual." He has held Coca-Cola for over 35 years, Apple for over 10 years, and Japan's five major trading houses for 5 years with plans to hold for another 50 years. He often says, "If you're not willing to hold a stock for ten years, don't hold it for ten minutes." The magic of compound interest only manifests through long-term holding—Berkshire Hathaway's annualized return from 1965 to 2024 is 19.9%, far surpassing the S&P 500's 10.4%, achieved not through timing but through the power of time and compounding.

5. Maintain Massive Cash Reserves, Waiting for the "Sweet Spot" to Strike

Buffett never fully invests all his cash. In 2025, Berkshire's cash reserves reached a record high of $347.7 billion. He compares the market to baseball hitter Ted Williams' "sweet spot"—only swing when the ball is in your most proficient zone. As of May 2026, he still refuses to acquire any overvalued tech companies, preferring to "wait five years rather than act at the wrong $TSM time."