Warren Buffett’s ability to identify high-quality businesses, buy them at reasonable prices and hold them for the long term has allowed him to build Berkshire Hathaway into a multibillion-dollar conglomerate. Unlike short-term traders who seek quick gains, Buffett focuses on companies with strong competitive advantages, durable earnings power and exceptional management.
Buffett’s biggest investment wins did not come from chasing fads or timing the market. Instead, they were the result of thorough analysis, patience and conviction. His success underscores the power of long-term investing and compounding, demonstrating that holding great businesses for decades can yield extraordinary results.
This article examines four of Buffett’s most successful investments – Coca-Cola, Apple, American Express and GEICO – to understand why they worked and what lessons investors can learn from them.
COCA-COLA: A LONG-TERM COMPOUNDING SUCCESS
Buffett’s investment in Coca-Cola is one of his most famous and profitable holdings, embodying his principle of investing in businesses with strong brands, pricing power and global reach. He first purchased shares in 1988, following the stock market crash of 1987 and has held onto the investment ever since.
At the time, Coca-Cola was already a dominant force in the beverage industry, but it was temporarily undervalued due to market uncertainty. Buffett recognised that Coca-Cola had several attributes that made it an ideal long-term investment:
Brand strength: Coca-Cola is one of the most recognisable brands in the world, with an unmatched level of consumer loyalty.
Pricing power: The company can raise prices without losing customers, ensuring consistent profitability.
Global reach: Coca-Cola operates in more than 200 countries, making it resilient to regional economic downturns.
Stable cash flow: The company generates predictable, recession-resistant revenue, supported by its diverse portfolio of beverages.
Buffett’s investment in Coca-Cola cost Berkshire Hathaway $1.3bn in the late 1980s. Today, that stake is worth over $25bn, not including the billions in dividends Berkshire has received over the years. This investment demonstrates the power of compounding dividends and holding onto great businesses for the long term.
Lesson for investors
- Invest in companies with iconic brands and strong pricing power.
- Look for businesses that can grow earnings steadily over decades.
- Holding a high-quality stock for the long term can generate massive compounded returns.
APPLE: A SHIFT INTO TECH THAT PAID OFF
For most of his career, Buffett avoided technology stocks, believing that rapid industry changes made it difficult to predict long-term winners. However, in 2016, he made a major investment in Apple, recognising that it was not just a tech company but a consumer brand with a fiercely loyal customer base.
Buffett’s investment thesis for Apple revolved around:
Brand loyalty: Apple users are deeply integrated into its ecosystem, making it difficult for them to switch to competitors.
Recurring revenue: The growth of services like iCloud, Apple Music and the App Store created stable, recurring cash flows.
Strong free cash flow: Apple generates tens of billions in free cash flow annually, which allows it to return capital to shareholders through dividends and buybacks.
Massive share buybacks: Apple aggressively repurchases its own shares, increasing the value of Buffett’s stake over time.
Berkshire Hathaway initially invested $1bn in Apple before building its stake to around $36bn. The investment reached more than $150bn, making it Buffett’s most profitable investment ever before he started trimming down his position. The company also pays substantial dividends, further enhancing Berkshire’s returns.
Lesson for Investors
- Be willing to adapt investment strategies when new opportunities arise.
- Recognise that some tech companies, like Apple, function more like consumer brands with durable competitive advantages.
- Invest in businesses with strong cash flow and shareholder-friendly policies like buybacks and dividends.
AMERICAN EXPRESS: A CLASSIC EXAMPLE OF INVESTING IN A STRONG BRAND
Buffett’s investment in American Express is a classic example of his ability to identify undervalued companies with strong brands and competitive advantages.
In the 1960s, American Express was hit by the Salad Oil Scandal, in which a borrower defaulted on loans backed by fraudulent collateral. The company’s stock plummeted as investors feared it would go bankrupt. However, Buffett saw that American Express’s core business – its charge card network – remained intact and that consumer trust in the brand would endure.
He invested heavily in the company, acquiring a stake that would become one of his best long-term holdings. Over the years, Buffett has continued to hold American Express, recognising its competitive moat and powerful financial network.
American Express benefits from:
Brand prestige: American Express cards are widely recognised and associated with high-end consumers and businesses.
High switching costs: Many business customers are deeply integrated into the American Express ecosystem, making it difficult for them to switch providers.
Strong profit margins: Unlike traditional banks, American Express earns a higher percentage of transaction fees, leading to higher profitability.
Buffett’s investment in American Express has grown into billions of dollars in value, demonstrating his ability to identify great businesses even in times of crisis.
Lesson for investors
- Invest in companies with strong brand recognition and customer loyalty.
- Market overreactions often create buying opportunities for long-term investors.
- Businesses with high customer retention and switching costs can generate sustainable profits.
GEICO: A LESSON IN PATIENCE AND CONVICTION
Buffett’s investment in GEICO is perhaps one of his best examples of patience and long-term conviction. He first learned about GEICO as a young investor while studying under Benjamin Graham, who was on the company's board. Buffett visited GEICO’s headquarters in 1951 and was impressed by its direct-to-consumer insurance model, which allowed it to offer lower prices than traditional insurers.
Despite seeing GEICO’s potential early on, Buffett initially made only a small investment. Over the next few decades, he closely followed the company’s progress and, in 1996, he acquired the entire company for $2.3bn. Today, GEICO is a major profit centre for Berkshire Hathaway, generating billions in annual underwriting profits and investment income.
Buffett’s success with GEICO stemmed from:
A cost advantage: Selling insurance directly to consumers rather than through agents.
A massive and growing customer base: Thanks to competitive pricing and brand recognition.
A steady stream of insurance ‘float’: Premiums collected before claims are paid, which Berkshire uses for investing.
GEICO has been a consistent cash generator for Berkshire, reinforcing Buffett’s belief in owning businesses with enduring competitive advantages and reliable cash flows.
Lesson for investors
- Patience is key – great investments don’t always pay off overnight.
- Look for businesses with cost advantages that create barriers to entry.
- A company’s competitive edge is more important than short-term price fluctuations.
WHAT INVESTORS CAN LEARN FROM THESE WINS
The importance of holding high-quality businesses for the long run: All of Buffett’s biggest wins share one common trait – he held them for decades. Rather than seeking quick profits, he allowed the power of compounding and reinvested earnings to generate extraordinary returns.
Identifying companies with durable competitive advantages: Buffett’s greatest investments all had strong competitive moats, whether through brand strength (Coca-Cola, American Express), customer loyalty (Apple) or cost advantages (GEICO).
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.