Warren Buffett is one of the greatest investors of all time. But how he invested in his early years vastly differs from how he manages Berkshire Hathaway today.

Buffett’s early investing years—before his partnership letters in the 1950s—are not well documented, but based on his later writings and track record, it’s likely he achieved returns exceeding 50% annually during that period. He leveraged strategies that are impossible for him to use today due to Berkshire's massive size.

For context, $10,000 invested at 50% annual returns will turn into $1,300,000 in just 12 years.

Buffett’s early success was built on high-conviction bets, small-cap stocks, and special situations—a deep-value approach shaped by his mentor, Benjamin Graham.

But by the 1970s, another figure would fundamentally reshape Buffett’s investing philosophy—Charlie Munger.

Munger convinced Buffett that it was better to buy a great business at a fair price than a fair business at a great price. This shift led to Buffett’s long-term focus on quality businesses with durable moats—which defines Berkshire Hathaway today.

So, how exactly has Buffett’s investment philosophy evolved? And what can individual investors learn from both eras?

Let’s break it down.

Buffett’s Investing Strategy: Then vs. Now (Side-by-Side Comparison)

How Munger Changed Buffett’s Investing Approach

In the late 1960s, Charlie Munger convinced Buffett to evolve beyond deep-value investing and focus on quality businesses.

Munger’s Influence on Buffett

✓ Focus on business quality, moats, and long-term compounding.
✓ Less emphasis on buying the absolute cheapest stocks.

This shift led Buffett to buy companies like See’s Candies in 1972—despite it trading at a premium.

Instead of buying stocks for quick revaluation gains, Buffett started owning businesses for long-term compounding.

Why Most Fund Managers Don’t Beat the Index

Most active fund managers fail to outperform the S&P 500 over time. Buffett has repeatedly stated that most investors are better off just buying an index fund.

Why do professionals struggle to beat the market?

1️⃣ Too Much Diversification

✓ Many funds hold 100+ stocks, diluting returns.
✓ Buffett concentrated on his best ideas—at times, 40%+ in one stock.

2️⃣ High Fees Kill Returns

✓ Actively managed funds charge 1-2% in fees annually, which compounds over time.
✓ The S&P 500 ETF charges close to 0%.

3️⃣ Short-Term Thinking & Performance Pressure

✓ Fund managers are judged quarterly, forcing them to chase short-term gains.
✓ Buffett thinks in decades, not months.

4️⃣ Too Much Money to Deploy

✓ Big funds face the same problem as modern Buffett—they need large investments to move the needle.
✓ Many great opportunities exist in small caps, but big funds can’t buy them.

5️⃣ Career Risk > Investment Performance

✓ If a fund manager underperforms for a few years, they get fired.
✓ This leads to "closet indexing"—where managers hold the same stocks as the S&P 500 to avoid standing out.

Buffett’s Advice to Most Investors?

But if you want to beat the market, you need to think like young Buffett—nimble, focused, and opportunistic.

On a side note, it is possible to beat the market with index funds, you just need the correct methodology.

Buffett on How He’d Earn 50% Annually with $1 Million

In a well-known interview, Buffett stated that if he managed a small portfolio today, he could easily achieve 50% annual returns.

In BRK’s 2024 AGM, he elaborated the strategy:

✓ Go through thousands of companies manually to find mispricings.
✓ Focus on small, illiquid stocks that big funds can’t touch.
✓ Use arbitrage and special situations.
✓ Be obsessive—treat investing like a scientist hunting for a breakthrough.
✓ Love the process, not just the money.

Buffett emphasized that true investing success requires deep curiosity and relentless research. It’s about finding opportunities others overlook.

Key Takeaways: How to Apply Buffett’s Strategies Today

Most investors don’t have billions to deploy—so how should you adapt Buffett’s approach to your portfolio?

1️⃣ Think Like Young Buffett, But Adapt

• Look for mispricings and asymmetric bets, but you don’t need to focus only on small caps.

• For eg, the Fab 5 (Apple, Microsoft, Google, Amazon, Nvidia) are compounding machines—owning them with the right strategy makes sense.

2️⃣ Don’t Hold Forever—Sell When the Thesis Plays Out

• Holding great businesses long-term is smart, but don’t ignore valuations.

• If a stock becomes overvalued or the thesis changes, trim or sell.

3️⃣ Separate Your Portfolio into Long-Term & Tactical Positions

• Long-term: Own compounding businesses that generate wealth over decades.

• Tactical: Take advantage of market inefficiencies, special situations, and shorter-term gains.

Buffett’s early strategy was about hunting mispricings.
His modern strategy is about owning great businesses forever.

The best investors know when to do both.