From 1965 to 2023, Warren Buffett achieved an average annual return of 19.8% through Berkshire Hathaway. Over the same period, the S&P 500 averaged 10.2% annually. How did Buffett beat the market for nearly 60 years? And what can individual investors like us learn from him?
Buffett’s Core Investment Principles
Rule 1: Never Lose Money
Buffett’s first rule is never to lose money. His second rule is to never forget rule number one. This emphasizes the importance of risk management. Lose 50% and you need a 100% gain just to break even.
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Rule 2: Only Invest in What You Understand
Buffett didn’t buy tech stocks during the dot-com bubble — because he didn’t understand them. As a result, while the Nasdaq collapsed 78% from 2000–2002, Berkshire held its ground.
Rule 3: Think Long-Term
Buffett’s average holding period is measured in decades. He bought Coca-Cola in 1988 and still holds it today. He says he’s not buying stocks — he’s buying businesses.
Rule 4: Be Greedy When Others Are Fearful, and Fearful When Others Are Greedy
During the 2008 financial crisis, Buffett made large investments in Goldman Sachs and GE. He knew that peak market fear represented the best buying opportunity.
What Individual Investors Can Actually Follow
Analyzing individual stocks and calculating business valuations the way Buffett does is impossible for most individual investors. In fact, Buffett himself recommends index funds.
See also: index fund guide
In his 2013 Berkshire shareholder letter, Buffett wrote: “My instructions to the trustee for my wife’s bequest: put 90% in an S&P 500 index fund and 10% in short-term government bonds” (Buffett, 2013).
What individual investors can take from Buffett:
- Hold low-cost index funds for the long term
- Don’t sell when the market crashes
- Avoid complex financial products you don’t understand
- Trust in the power of compounding and be patient
Why Trying to Imitate Buffett Fails
Many investors try to pick individual stocks like Buffett. But Buffett has decades of experience, vast corporate analysis capabilities, and exclusive information access. It’s impossible for individual investors to compete using the same methods. The wise approach is to follow Buffett’s philosophy — but execute it through index funds.
Disclaimer: This article is written for educational purposes and does not constitute a recommendation to invest in any specific security. Past investment performance does not guarantee future returns. All investments carry the risk of loss of principal.
Disclaimer: This article is for educational and informational purposes only. It is not a substitute for professional medical advice, diagnosis, or treatment. Always consult a qualified healthcare provider with any questions about a medical condition.
Your Next Steps
- Today: Pick one idea from this article and try it before bed tonight.
- This week: Track your results for 5 days — even a simple notes app works.
- Next 30 days: Review what worked, drop what didn’t, and build your personal system.
Last updated: 2026-03-16
About the Author
Written by the Rational Growth editorial team. Our health and psychology content is informed by peer-reviewed research, clinical guidelines, and real-world experience. We follow strict editorial standards and cite primary sources throughout.
References
- Buffett, W. (2013). Berkshire Hathaway Annual Shareholder Letter 2013. Berkshire Hathaway.
- Buffett, W. (2017). Berkshire Hathaway Annual Shareholder Letter 2016. Berkshire Hathaway.
- Hagstrom, R. (2013). The Warren Buffett Way (3rd ed.). Wiley.
- Malkiel, B. G. (2019). A Random Walk Down Wall Street. W. W. Norton.
- S&P Dow Jones Indices. (2023). Berkshire Hathaway vs S&P 500. S&P Global.