The division of Buffett's investment philosophy stages is generally categorized as the early stages during the partnership phase, the mid-stage after taking control of Berkshire Hathaway until the end of the 1980s, and the later stage from the 1990s to the present. This classification method is based on the company's organizational form and operating model, which makes some sense, but it is not quite accurate from the perspective of the evolution of his personal investment philosophy. My personal opinion on this classification is as follows:

Stage One (Early) 1949-1971 (19-41 years old). From a chronological perspective, this stage is mainly concentrated in the 1950s and 1960s. The investment style is Graham's margin of safety method, which is later referred to as "value investing". Buffett himself jokingly called it the "cigar butt" investment approach of only buying cheap goods.

In 1949, when Buffett was 19 years old, he read Graham's classic work, "The Intelligent Investor", for the first time and was immediately captivated by the book. Buffett's roommate Wood said, "For Buffett, it was like finding God." It is completely reasonable to regard this year as the beginning of the early formation of Buffett's investment philosophy.

On July 17, 1970, Buffett wrote in a correspondence with Graham, "Prior to this, I had been investing by gland rather than by brain." Buffett himself even compared this experience to "Paul walking on the road to Damascus" and learned from it the philosophy of "buying 1 dollar for 40 cents". From then on, the philosophy of "margin of safety" became the cornerstone of Buffett's investment thought.

Several important events that occurred afterwards played a crucial role in Buffett's evolution: in 1950 (at 20 years old), Buffett officially "became a disciple of Graham" at Columbia University's graduate school; in 1954 (at 24 years old), Buffett joined Graham-Newman Corp. and worked for Graham; in 1956 (at 26 years old), he established his first partnership and began his entrepreneurial journey; he began his acquaintance with Munger (Charlie Munger) in 1959 and carried out a series of collaborations in the 1960s; in 1962, Buffett started buying Berkshire stocks, became the largest shareholder in 1963, and formally took over Berkshire in 1965 (at 35 years old); in 1967 (at 37 years old), Buffett entered the insurance industry for the first time by purchasing National Indemnity Company for 8.6 million dollars; in 1969 (at 39 years old), he dissolved his partnership and focused on managing Berkshire.

During the operation of the partnership, Buffett's investment methods were initially categorized into three types based on characteristics, and later developed into four types. In a report written to partners in January 1962, Buffett classified his investment methods into three categories:

First Category: Generals (Undervalued Investments). Refers to those stocks whose value is underestimated. This category has the largest investment proportion.

The second category: workouts (arbitrage-type investment). This type of investment's price depends more on the company's management decisions rather than the supply and demand relationship of buyers and sellers. Actions by the company that affect investment prices include mergers, liquidations, reorganizations, spin-offs, etc. This is unrelated to the performance of the Dow Jones Industrial Average.

The third category: Control-type investment. This means either having control over the company or buying a significant amount of shares to influence the company's management decisions. This type of investment is also unrelated to the performance of the Dow Jones Industrial Average.

The first and third categories can transform into each other. If the price of the bought "Generals" lingers at low points for a long time, Buffett will consider buying more shares, thus evolving into "Control"; conversely, if the price of "Control" rises rapidly within a few years of purchase, Buffett typically considers realizing profits at high points, thereby completing a successful "Generals" type of investment.

In a report written by Buffett to his partners in January 1965, he split the original first category investment Generals into two: Generals-Private Owner Basis and Generals-Relatively Undervalued.

Generals-Private Owner Basis refers to a type of undervalued stock, smaller in size, lacking appeal, and ignored by the market. Additionally, its price is far below the value of the company to a private equity investor (intrinsic value). If the price remains undervalued for a long time, it can transform into Control.

Generals-Relatively Undervalued refers to stocks whose prices are lower compared to similar quality companies. Although undervalued, they are typically larger in scale, of little significance to private investors, and cannot transform into Control.

As early as 1964, Buffett noticed that Graham's strategy of buying cheap stocks had issues with value realization and was not perfect, and with the rising stock market, such investment opportunities were becoming scarce. The fourth type of investment Generals-Relatively Undervalued added in Buffett's January 1965 report can be seen as a new exploration. However, it was still in the stage of quantity and had not fully escaped Graham's investment framework. The best case of this type of investment is when, in 1964, Buffett invested 40% of the partnership's funds in American Express during the "salad oil scandal" and held the shares for 4 years. In the following 5 years, the stock of American Express skyrocketed by 5 times.

As Munger said, the experience of working under Graham and the substantial profits made Buffett's mind temporarily blocked, making it difficult to break away from such a successful way of thinking.

In 1969, at the age of 39, Buffett was greatly inspired by Fischer's work "Common Stocks and Uncommon Profits." The true force that liberated Buffett from Graham's ideological constraints and completed his evolution was Charlie Munger. Munger has a keen insight into the value of a superior company, further refining Fischer's theories on company characteristics. "Charlie pushed me in another direction, rather than just recommending buying cheap stocks like Graham. That was the power of his thinking; he expanded my horizons. I evolved from a gorilla to a human at an extraordinary pace; otherwise, I would be much poorer than I am now."

In summary, it was only when faced with the issue of realizing value that Buffett recognized the limitations of Graham's philosophy of 'buying any company regardless of nature' and began to integrate Fischer and Munger's theories of expanding the value of outstanding companies into his philosophy.

Phase two (mid-term) 1972-1989 (ages 42-59). On January 3, 1972, Buffett accepted Munger's suggestion to acquire See's Candies for 25 million dollars, marking the beginning of Munger's continuous encouragement for Buffett to pay for quality.

With the robust growth of See's, both Buffett and Munger realized that 'buying a good company and letting it develop freely is much easier and faster than buying a loss-making company and then spending a lot of time, energy, and money to support it.' The formation of this investment philosophy marks Buffett's 'evolution from ape to human.'

Buffett combined the thoughts of Graham, Fischer, and Munger to gradually form his own style. This evolutionary phase can be corroborated by the original statements of Buffett and Munger. In 1997, Munger said at the company shareholders' annual meeting: 'See's was the first company we acquired based on product quality.' Buffett added: 'If we hadn't acquired See's, we wouldn't have bought Coca-Cola stock.'

A notable characteristic of Buffett's investment approach during this phase was the reduction of arbitrage operations and the investment in cheap stocks, increasing control over excellent companies and using insurance float for long-term investments in the common stocks of quality companies.

Acquisitions of and permanent holdings in excellent companies: such as See's, and the internal Alaska furniture store.

Permanent holdings in a few 'inevitably great' common stocks: such as The Washington Post, Geico, Coca-Cola, etc.

Long-term investment in certain "high potential" excellent enterprise common stocks;

Medium-term fixed income securities;

Long-term fixed income securities;

Cash equivalents;

Short-term arbitrage;

Convertible preferred stocks;

Junk bonds.

In the first stage, Buffett's investment philosophy and role were essentially Graham-style "private equity fund manager"; in the second stage, it transformed into a dual role of entrepreneur and investor combined into one. He stated, "Because I consider myself as a business operator, I become a better investor; because I consider myself as an investor, I become a better business operator."

This stage can be summarized by a remark made by Buffett in 1985: "I am now more willing to pay a little more for good industries and good management than I was 20 years ago. My tendency is to look at the statistics individually. What I increasingly value are those intangible things."

The third stage (later stage) from 1990 to present (since turning 60). Since the 1990s, there can also be a more precise division method — the period from 1995 (age 65) to the present is referred to as Buffett's later stage. There is a remark from Munger as proof: "After turning 65, Warren's investment skills have truly reached new heights."

Entering the 1990s, Berkshire's future faced greater difficulties; in Munger's words:

1. Our size is too large, which limits our investment choices to more competitive fields that have been vetted by those who are often smart.

2. The current environment will make ordinary stocks in the next 15-20 years quite different from the stocks we have seen in the past 15-20 years.

Simply put, Buffett faced a dilemma: too much money, too few opportunities. In the face of such challenges, through Buffett's continuous learning and the power of compounding, Buffett's investment philosophy evolved to a higher level, with more comprehensive and refined investment skills. The evolution of Buffett's investment thought during this stage is reflected in several aspects:

1. The introduction of the "moat" concept

This marks a more mature art of Buffett's assessment of a company's long-term competitive advantages and intrinsic value. In 1993, Buffett first introduced the concept of "moat" in his letter to shareholders. He said, "In recent years, Coca-Cola and Gillette razors have actually been increasing their market share globally. Their brand strength, product characteristics, and sales power give them a significant competitive advantage, creating a moat around their economic fortress. In contrast, typical companies struggle without such protection. As Peter Lynch said, stocks of companies selling similar products should carry a label: 'Competition is harmful to health.'"

On May 1, 1995, at Berkshire's annual meeting, Buffett gave a detailed description of the concept of 'moat': 'A wonderful castle surrounded by a deep and dangerous moat. The owner of the castle is an honest and noble person. The main source of strength of the castle is the owner's genius brain; the moat serves as a permanent barrier against enemies attempting to attack the castle; the owner inside the castle creates gold, but does not keep it all to himself. Roughly translated, we prefer those large companies that have a controlling position, whose franchises are hard to replicate, and possess great or even permanent sustainable operation capabilities.'

At the 2000 shareholders' meeting, Buffett further explained, 'We use the 'moat', its capacity to widen, and its invulnerability as the main criteria for judging a great enterprise. We also tell management that we hope the company's moat will continue to widen year after year. It doesn't necessarily mean the company's profits have to increase each year, as that isn't always possible. However, if a company's 'moat' continues to widen year after year, it will operate very well.'

2. Shift in investment strategy

One shift: 'Due to the rapid growth of Berkshire's assets and the sharp contraction of the investment space that would significantly affect our performance, we must make shrewd decisions. Therefore, we adopted a strategy that only requires a few shrewd moves – rather than overly shrewd ones – in fact, one good idea each year is sufficient for us.' This means Buffett adopts a more concentrated equity investment strategy.

Another shift: As the size of capital grows, Buffett's common stock investments are more focused on finding excellent or good large companies that are undervalued in a specific segment, implementing a selective contrarian investment strategy, which means actively paying attention when a large company with a lasting competitive advantage encounters setbacks and its stock price is depressed by a short-sighted market. This means Graham's model of buying cheap stocks regardless of their nature is no longer suitable for the large Berkshire.

3. Development of the 'swinging for the fences' concept

American super slugger Williams explained his hitting technique in his book 'The Science of Hitting'. It divides the hitting area into 77 units, each representing a baseball, and he only swings when the ball is in the best unit (the lucky zone), even if doing so might lead to a strikeout because a ball in the worst position would severely lower his success rate.

Buffett analogized this strategy to investing, developing the 'swinging for the fences' concept in the investment field. In 1995, Buffett briefly explained this concept in a speech to business school students at the University of Southern California: 'In investing, there is no such thing as a good pitch that you must hit. You can stand in the batter's box, and the pitcher can throw good pitches; if General Motors is offered at $47, and you lack enough information to determine whether to buy it at $47, you can let it pass without anyone calling you out. Because you can only be called out if you swing and miss.'

4. Distinction of Three Types of Business

In his 2007 letter to shareholders, Buffett made a vivid distinction between three types of business: great (superior), excellent, and despicable.

Great business: those that have a lasting "moat," high ROI, and can achieve profit growth without requiring a large increase in capital, such as Hershey's Confectioners; Excellent business: those that have a lasting competitive advantage, relatively high ROI, but require a significant increase in capital to achieve growth, such as Flight Safety Company; Despicable business: those that grow rapidly, must provide significant funding to achieve growth, while profits are limited or non-existent, like the Aviation industry.

Buffett simply likens these three types of business to three types of "deposit accounts" — a great account pays very high interest, and that interest increases over time; an excellent account pays attractive interest but you can only earn that interest by increasing the deposit; and the last type is the despicable account, which provides insufficient interest and requires you to continually increase funds to obtain disappointing returns.

5. Breakthroughs in Multinational Investment and Acquisitions

Buffett's first multinational investment was in 1991 when he invested in the UK alcoholic beverage company Guinness; the most representative multinational investment was in 2003 when he invested nearly 0.5 billion USD in PetroChina; the most representative multinational acquisition was in 2006 when he purchased 80% of Iscar Metal Products Company in Israel for 4 billion USD, which was Buffett's largest investment transaction outside the USA and also the largest overseas investment in Israel's history.

In recent years, Buffett also made impressive multinational investments in the South Korean stock market. He simply browsed the investment manuals provided by investment banks and found some financially sound companies with a price-to-earnings ratio of only 3, and he selected about 20 stocks to buy, later selling them when they increased five or six times, nearing their intrinsic value.

6. Unconventional Investments are Become More Diverse

A well-filled wallet has forced Buffett to make new breakthroughs and developments in unconventional investments. In 1991, he invested $300 million in American Express stock, commonly known as "Percs", through private placements, which allowed for a special dividend in the first three years, convertible to common stock before August 1994; from 1994 to 1995, he established a position in oil derivative contracts amounting to 45.7 million barrels; in 1997, he purchased 0.1112 billion ounces of Silver; in 1997, he bought $4.6 billion of long-term US zero-coupon Bonds that are amortized on the books; in 2002, he first entered the Forex market for investment, and by the end of 2004, he held a total of $21.4 billion in Forex positions, with his portfolio spread across twelve foreign currencies; at the same time, he ventured into the junk bond market in euros, with a total value reaching $1 billion by 2006; in addition, Buffett has also engaged in fixed income arbitrage and held other derivative contracts, which can be classified into two main categories: Credit Default Swaps (CDS) and selling long-term Put Options on stock indices.

It is noteworthy that the latest investment strategy of Buffett, abandoning Forex investment to acquire overseas companies, shows his reluctance to hold too many dollar assets and Cash. As Buffett pointed out, Berkshire's main base remains in the USA, but to guard against the continued depreciation of the US dollar, acquiring quality overseas companies serves a dual purpose.

In summary, in his later years, Buffett has become more open-minded and technically comprehensive. He has honed his skills in selecting conventional investments, focusing more on investment concentration, while intensifying efforts in overseas investments and mergers; in unconventional investments, he has diversified further and become more aggressive. When experts and scholars summarize the master's classic strategies into dogma, the master has already evolved.

Editor/lambor