{"id":18366,"date":"2023-03-20T23:56:00","date_gmt":"2023-03-20T15:56:00","guid":{"rendered":"https:\/\/www.granitefirm.com\/blog\/us\/?p=18366"},"modified":"2025-11-27T10:19:31","modified_gmt":"2025-11-27T02:19:31","slug":"long-term-investment","status":"publish","type":"post","link":"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/","title":{"rendered":"How Buffett Structures His Long-Term Investment Portfolio"},"content":{"rendered":"\n<p>In <a href=\"https:\/\/berkshirehathaway.com\/letters\/1996.html\" target=\"_blank\" rel=\"noreferrer noopener\">his 1996 shareholder letter<\/a>, Buffett explained in great detail how he structured his long-term investment portfolio. <strong>Many of the contents of this letter have been quoted repeatedly so far, and it can be regarded as a very important shareholder letter<\/strong>. The text in italics in this article comes from the original content of Buffett\u2019s 1996 shareholder letter.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Do_not_trade_frequently\" >Do not trade frequently<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Do_Concentrated_Investment\" >Do Concentrated Investment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Predictability_and_Sustained_Competitive_Advantage_Matter\" >Predictability and Sustained Competitive Advantage Matter<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Hot_Tech_Stocks_Are_Not_Good_Picks\" >Hot Tech Stocks Are Not Good Picks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Good_company_is_rare\" >Good company is rare<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#The_purchase_price_must_have_a_margin_of_safety\" >The purchase price must have a margin of safety<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Financial_Theory_Doesnt_Help\" >Financial Theory Doesn&#8217;t Help<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Bet_only_on_great_companies\" >Bet only on great companies<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/#Related_articles\" >Related articles<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Do_not_trade_frequently\"><\/span>Do not trade frequently<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Our portfolio shows little change: We continue to make more money when snoring than when active.<\/em><\/p>\n\n\n\n<p><em>Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve&#8217;s discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Do_Concentrated_Investment\"><\/span>Do Concentrated Investment<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio. This investor would get a similar result if he followed a policy of purchasing an interest in, say, 20% of the future earnings of a number of outstanding college basketball stars. <\/em><\/p>\n\n\n\n<p><em>A handful of these would go on to achieve NBA stardom, and the investor&#8217;s take from them would soon dominate his royalty stream. To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Predictability_and_Sustained_Competitive_Advantage_Matter\"><\/span>Predictability and Sustained Competitive Advantage Matter<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>In studying the investments we have made in both subsidiary companies and common stocks, you will see that we favor businesses and industries unlikely to experience major change. The reason for that is simple: Making either type of purchase, we are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.<\/em><\/p>\n\n\n\n<p><em>We look for similar predictability in marketable securities.<\/em><\/p>\n\n\n\n<p><em>Companies such as Coca-Cola (ticker: KO) and Gillette (ticker: PG)  might well be labeled &#8220;The Inevitables.&#8221;<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Hot_Tech_Stocks_Are_Not_Good_Picks\"><\/span>Hot Tech Stocks Are Not Good Picks<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>I should emphasize that, as citizens, Charlie and I welcome change: Fresh ideas, new products, innovative processes and the like cause our country&#8217;s standard of living to rise, and that&#8217;s clearly good. As investors, however, our reaction to a fermenting industry is much like our attitude toward space exploration: We applaud the endeavor but prefer to skip the ride.<\/em><\/p>\n\n\n\n<p><em>Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will The Inevitables. But I would rather be certain of a good result than hopeful of a great one.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Good_company_is_rare\"><\/span>Good company is rare<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Of course, Charlie and I can identify only a few Inevitables, even after a lifetime of looking for them.<\/em><\/p>\n\n\n\n<p><em>For every Inevitable, there are dozens of Impostors, companies now riding high but vulnerable to competitive attacks. Considering what it takes to be an Inevitable, Charlie and I recognize that we will never be able to come up with a Nifty Fifty or even a Twinkling Twenty. To the Inevitables in our portfolio, therefore, we add a few &#8220;Highly Probables.&#8221;<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_purchase_price_must_have_a_margin_of_safety\"><\/span>The purchase price must have a margin of safety<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>You can, of course, pay too much for even the best of businesses. The overpayment risk surfaces periodically and, in our opinion, may now be quite high for the purchasers of virtually all stocks, The Inevitables included. Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial_Theory_Doesnt_Help\"><\/span>Financial Theory Doesn&#8217;t Help<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses &#8211; How to Value a Business, and How to Think About Market Prices.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bet_only_on_great_companies\"><\/span>Bet only on great companies<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em>Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards &#8211; so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren&#8217;t willing to own a stock for ten years, don&#8217;t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio&#8217;s market value.<\/em><\/p>\n\n\n\n<p><em>Though it&#8217;s seldom recognized, this is the exact approach that has produced gains for Berkshire.<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"157\" height=\"90\" src=\"https:\/\/www.granitefirm.com\/blog\/us\/wp-content\/uploads\/sites\/2\/2023\/03\/LI-1600x1200-1.jpg\" alt=\"Long-Term Investment\" class=\"wp-image-18367\"\/><figcaption class=\"wp-element-caption\">credit: wealthface.com<\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Related_articles\"><\/span>Related articles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2025\/11\/26\/long-term-taiwan-investor\/\">Almost no long-term Taiwan investors<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/06\/16\/buffetts-portfolio-6-stocks\/\">79% of Buffett&#8217;s portfolio is invested in just 6 stocks<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/07\/08\/buffetts-dividend\/\">87% of Buffett&#8217;s dividends come from these 7 stocks&#8221;<\/a><\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/27\/buffett-portfolio\/\" target=\"_blank\" rel=\"noreferrer noopener\">The commonalities of Buffett portfolio \u2013 cheap, fixed income, repurchase<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/02\/20\/companies-buffett-owns-20\/\">The companies Buffett owns more than 20%<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/03\/20\/long-term-investment\/\">How Buffett Structures His Long-Term Investment Portfolio<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/12\/14\/buffett-hold-for-long-haul\/\" target=\"_blank\" rel=\"noreferrer noopener\">Is Buffett no longer hold for long haul? TSMC, HP, and US Bancorp cases study<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/04\/07\/buffett-deserves-study\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why Buffett deserves further study?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/08\/17\/possibility-of-long-term\/\">Possibility of long-term holdings, Deep dive on Buffett&#8217;s case<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/08\/18\/why-concentrated-investment\/\">Why concentrated Investment?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/06\/21\/why-long-term-investment\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why long-term investment is better?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/08\/12\/good-companies-are-rare-two-or-three-will-make-you-very-rich-take-texas-instruments-as-an-example\/\" target=\"_blank\" rel=\"noreferrer noopener\">Great companies are rare, two or three will make you very rich<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2023\/01\/25\/make-u-very-rich\/\">Two or three stocks in your life can make you very rich<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2021\/08\/31\/circle-of-competence\/\">The importance of circle of competence<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/10\/13\/why-modern-portfolio-theory-unreasonable\/\">Why Modern Portfolio Theory Unreasonable?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/10\/07\/efficient-market\/\" target=\"_blank\" rel=\"noreferrer noopener\"><\/a><a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/10\/07\/efficient-market\/\" target=\"_blank\" rel=\"noreferrer noopener\">Why is the efficient market hypothesis unreasonable?<\/a>&#8220;<\/li>\n\n\n\n<li>&#8220;<a href=\"https:\/\/www.granitefirm.com\/blog\/us\/2022\/12\/25\/creativity-is-worthless\/\">Creativity is worthless in investment<\/a>&#8220;<\/li>\n<\/ul>\n\n\n\n<p><em><strong>Disclaimer<\/strong><\/em><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><em>The content of this site is the author\u2019s personal opinions and is for reference only. I am not responsible for the correctness, opinions, and immediacy of the content and information of the article. Readers must make their own judgments.<\/em><\/li>\n\n\n\n<li><em>I shall not be liable for any damages or other legal liabilities for the direct or indirect losses caused by the readers&#8217; direct or indirect reliance on and reference to the information on this site, or all the responsibilities arising therefrom, as a result of any investment behavior.<\/em><\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>In his 1996 shareholder letter, Buffett explained in great detail how he structured his long-term investment portfolio. Many of the contents of this letter have been quoted repeatedly so far, and it can be regarded as a very important shareholder letter. <\/p>\n","protected":false},"author":1,"featured_media":18367,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,392,397,204,80,11],"tags":[48,49,139,63],"class_list":["post-18366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-long-term-investing","category-circle-of-competence","category-margin-of-safety","category-moats-and-competitive-advantages","category-portfolio-management","category-buffett","tag-brk-a","tag-brk-b","tag-ko","tag-pg"],"_links":{"self":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/comments?post=18366"}],"version-history":[{"count":28,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18366\/revisions"}],"predecessor-version":[{"id":40312,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/posts\/18366\/revisions\/40312"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media\/18367"}],"wp:attachment":[{"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/media?parent=18366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/categories?post=18366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.granitefirm.com\/blog\/us\/wp-json\/wp\/v2\/tags?post=18366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}