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The simple magic behind Warren Buffett’s extraordinary success

Published: 12 Jun. 2025, 00:04

Kim Kyung-rok

The author is an adviser at Mirae Asset Management.

At the age of 94, Warren Buffett announced at the Berkshire Hathaway annual shareholder meeting on May 3 that he will step down from his role as chairman by the end of the year. After six decades at the helm, Buffett leaves behind a legacy that transformed Berkshire Hathaway from a modest textile manufacturer into the eighth-largest company in the world by market capitalization.

Berkshire Hathaway now ranks just behind tech giants like Apple, Microsoft and Nvidia, and the Saudi state-owned oil company Aramco. The company holds significant stakes in major U.S. firms, including Apple, American Express, Bank of America and Coca-Cola, which together make up 65 percent of its equity holdings. Unlike other leading corporations that have thrived on technological or pharmaceutical innovation, Berkshire reached its global standing through a different path — one shaped by what might be described as Buffett’s “magic three.”

Berkshire Hathaway Chairman Warren Buffett attends the Berkshire Hathaway Inc annual shareholders' meeting in Omaha, Nebraska on May 3. [REUTERS/YONHAP]

The first element of Buffett’s approach was his steadfast focus on equities. He made it clear throughout his career that he would not invest in real estate. When asked if he would still avoid property investment if he were to start over at a younger age, Buffett replied without hesitation: yes. His rationale was that real estate involves complex transactions, legal barriers and inflexible pricing, whereas equities offer a broader field for finding undervalued quality businesses.

Second, Buffett excelled at capital allocation. Much of his success stemmed from investing in American companies during the post–World War II boom. He often credited his achievements to being born in the United States, where a long period of economic expansion provided fertile ground for investors. His strategy focused on companies that earned consistently high returns on capital with minimal volatility — firms that resembled bonds in their predictability but outperformed them in returns.

He invested only in businesses with simple models, minimal regulatory burdens and dominant market positions. Because of these strict criteria, his investments were highly concentrated. This disciplined approach, paired with his confidence in the American economy, proved key to Berkshire’s long-term performance.

The final piece of Buffett’s formula was time. He maximized the power of compound interest over decades. Starting his investment partnership at age 25, Buffett used the profits to acquire Berkshire Hathaway. Under his leadership, the firm avoided paying dividends and reinvested earnings into high-return opportunities. When its stock price fell below intrinsic value, Berkshire repurchased and retired shares, further boosting capital efficiency.

Buffett repeatedly emphasized the virtues of patience and compounding. More than 90 percent of his wealth was accumulated after he turned 60, illustrating how long-term investing rewards consistency over spectacle.

Buffett’s “magic three” — equities, allocation and compounding — do not involve innovation on the scale of Apple's iPhone or Ford’s assembly line. Instead, they reflect textbook principles that anyone could follow. Yet, as Buffett’s life shows, knowledge and disciplined execution are not the same.

For instance, despite the logic of increasing equity exposure early in life, many Korean investors do not adopt this strategy. Policymakers introduced a default investment option in retirement accounts to increase stock allocations, but the majority still favor principal-guaranteed products. As a result, Korea's retirement portfolios remain heavily underweight in equities.

Even for those who invest in stocks, replicating Buffett’s capital allocation is difficult. Buffett himself acknowledged that most individuals cannot follow his path. He has long advised ordinary investors to buy shares of Berkshire Hathaway or invest in the S&P 500 index. He believed that even this basic strategy could place investors in the top 10 percent of fund performance rankings after a decade.

Warren Buffett, chairman and CEO of Berkshire Hathaway, right, looks at Microsoft founder and Berkshire board member Bill Gates during an interview with Liz Claman of the Fox Business Network in Omaha, Nebraska on May 7, 2012. [AP/YONHAP]

Today, however, the global economy is no longer what it was after World War II. Back then, America was the lone economic engine amid widespread devastation. Now, emerging powers like China and India are driving global growth. While U.S. stocks remain a strong core for global investors, Buffett’s strategy might benefit from broader diversification to reflect today’s multipolar world. Korean investors, whose foreign equity holdings are overwhelmingly concentrated in U.S. markets, may want to consider balancing their portfolios with exposure to other major economies.

One of Buffett’s most emblematic investments remains his 1988 purchase of 14 million shares in Coca-Cola — a stake that has grown to 200 million shares over the decades. His long holding period underscores a fundamental truth of investing: success requires the ability to endure time. Like life itself, investing rewards those who persist through cycles, stay patient and remain focused.

Buffett once said, “You don’t need to do extraordinary things to get extraordinary results.” His career stands as proof that following simple rules with extraordinary discipline can lead to remarkable outcomes — even while enjoying hamburgers and Coca-Cola. That, more than anything, may be the true source of his greatness.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.