Buffett has a simple test for every stock he buys: Would he be happy owning it if the market were to close for 10 years? If the answer is no, he doesn’t buy it.
This philosophy explains why he built a $344 billion cash stockpile while other investors have chased perhaps overvalued stocks as the stock market has risen in 2025. It’s also what has helped his company generate over 20% annual returns for four decades, yet many investors still overlook it.
Buffett’s Core Belief: The 10-Year Test
Buffett’s investment philosophy centers on a single powerful idea: If you wouldn’t be happy owning a stock with the market closed, you shouldn’t own it with the market open.
The day Berkshire Hathaway Inc. (BRK.A, BRK.B) was listed on the New York Stock Exchange in 1988, Buffett told specialist Jimmy Maguire that he’d consider him an enormous success if the next trade in Berkshire stock happened two years later. While Buffett said that Maguire didn’t seem enthused by the idea, Buffett was making a serious point about how he views stocks as ownership stakes in real enterprises, not lottery tickets.
From 1965 to 2024, Berkshire Hathaway’s stock returned 5,502,284%, compared with a return of 39,054% for the S&P 500. That gives Berkshire Hathaway stock an average annual return of 19.9%, about double that of the S&P 500 at 10.4% over the same period.
Long-Term Perspective
Here’s the uncomfortable truth: constantly checking your portfolio is not making you richer but could just be stressing you out. Research has shown what Buffett figured out decades ago—treating the stock market like a daily scoreboard destroys both your wealth and your peace of mind.
For example, there’s evidence that the more investment apps prod you to “check now,” the worse your decisions get. In a large randomized experiment involving more than 9,000 participants, the U.K. Financial Conduct Authority found that game-like design elements (such as push notifications, leaderboards, and prize draws) directly increased trading frequency and risk-taking behavior—without providing any additional useful information.
Complementing that, a study of 15,000 clients at two German banks shows that when the same person trades on a smartphone, they’re far more likely to buy volatile “lottery-like” stocks and chase recent winners compared with their PC trades. It’s studies like this that have led experts to worry about the gamification of finances through certain investing apps that have slot machine-like psychological hooks.
Quality Over Timing
The practical application of Buffett’s philosophy involves shifting from a speculator’s mindset to an owner’s perspective. Rather than asking “Will this stock price go up tomorrow?” the question becomes “Would I be comfortable owning this business for the next decade?”
We see this with Buffett’s core holdings. Companies like Coca-Cola Co. (KO), American Express (AXP), and Apple Inc. (AAPL) are businesses with durable competitive advantages, which he discusses in terms of “economic goodwill.” These companies can raise prices, maintain market share, and generate consistent cash flows regardless of short-term market sentiment.
The key characteristics Buffett looks for include strong management teams, predictable earnings, minimal capital requirements for growth, and dominant market positions. As he noted in a letter to Berkshire Hathaway shareholders, businesses that require substantial reinvestment just to maintain their position rarely create lasting wealth. Instead, he favors companies where “retained earnings effectively …translate a dollar retained by them into a dollar or more of subsequent market value for us.”
In other words, Buffett wants companies that can take their profits and turn them into even more value for shareholders without constantly needing massive new investments just to stay competitive.
Bottom Line
To replicate Buffett’s approach, you can start by evaluating your investment prospects as if you couldn’t sell them for a decade. Would you sleep well at night? If not, consider why you own them in the first place. Next, before making any new purchase, imagine explaining to a friend why you’d be happy holding that stock for a decade, without explaining how you’re hopeful that the stock price is going to shoot up.
This approach can help guide you toward quality companies with predictable earnings, strong competitive positions, and competent management teams. These are exactly the characteristics Buffett has emphasized throughout his career as the foundation of successful long-term investing.
