Buffett's 60 Years of Investment Legacy: The Repeating "Fear and Greed" Rule in Market Cycles

As Warren Buffett steps back from Berkshire Hathaway’s management at the end of 2025, the investment world is losing a crucial insight. The “Oracle of Omaha” grew a $25 million struggling textile company into a $1 trillion conglomerate and has been sharing his investment philosophy annually through shareholder letters for over 60 years. These letters are not just financial reports; they are practical classrooms on human psychology, patience, and capital management.

Buffett’s foresight has been proven across multiple market cycles. From the dot-com bubble to the cryptocurrency boom, the patterns he repeatedly warned about remain unchanged. At the core is understanding the “two extremes” of market psychology.

The Truth About Market Timing: The Rewards of Contrarian Courage

In his 1986 shareholder letter, Buffett presented one of the most quoted investment maxims. While he explicitly states that predicting perfect market timing is impossible, he points out a clear pattern shown by history—that waves of fear and greed repeat over and over.

Practicing this principle means buying quality assets that have fallen due to panic selling and resisting speculative euphoria. When markets are swept up in excitement and everyone is heading in the same direction, that is actually the most dangerous time. Conversely, despairing market conditions open a window of opportunity for wise investors.

This strategy has been tested repeatedly during subsequent market bubbles. Discipline unaffected by emotions has enabled long-term wealth building.

Learning from Corporate Acquisition Mistakes: Prioritizing Capital Use

Buffett openly admitted that his 1965 acquisition of Berkshire Hathaway was a “mistake” in later years. The declining textile business was a lesson that even the best managers cannot reverse the fundamental decline of a business.

However, this mistake taught him the most important lesson: the essence of capital allocation is not just buying and selling stocks but making decisions based on a deep understanding of future economic potential. In 1982, he stated, “Full acquisition of a good company at a fair price is the most exciting opportunity for us,” clarifying that it is a pursuit balancing difficulty and reward.

He also emphasized the dangers of financing acquisitions with stock. During the 1998 purchase of General Re, he used 272,000 Berkshire shares but later called it a “horrible mistake” because the value provided far exceeded what was received.

CEO enthusiasm and optimistic seller forecasts often distort proper valuation. Buffett has consistently pointed out that “wild ambition and ego” can destroy value for buyers over decades.

A Multifaceted Approach: Surpassing the Limits of a Single Strategy

In 1995, Buffett humorously described his investment approach as “duality.” It involves holding high-quality publicly traded stocks while simultaneously pursuing complete business acquisitions. This flexible stance has given Berkshire a structural advantage over competitors with a single allocation strategy.

The ability to choose the optimal investment form depending on market conditions has been a key driver of long-term outperformance.

Financial Risk Management: Derivatives as a Time Bomb

In 2002, Buffett used the stark phrase “financial weapons of mass destruction” to warn about derivatives. Concerns about systemic risk from interconnected leverage systems were validated during the 2008 financial crisis, when the “terrible web of interdependence” among institutions unraveled, shaking the entire market.

Interestingly, Berkshire Hathaway itself held 251 derivative contracts. Buffett’s rule is clear—only engage if the expected value is overwhelmingly favorable. Risk management is not about avoiding all risks but taking calculated risks only when substantial returns are expected.

Seeing the Market’s True Nature: Hidden Weaknesses in Prosperity

Buffett often uses the metaphor: “When the tide goes out, you see who’s been swimming naked.”

Even seemingly strong insurance companies or leveraged businesses reveal critical vulnerabilities when stress hits the market. True management strength is demonstrated not in fair weather but in adversity. This insight was reinforced after experiencing the losses from Hurricane Andrew in 1992.

Preparing for Opportunities: The Strategic Value of Cash Positions

In Buffett’s investment philosophy, cash holdings are not just “waiting” but strategic preparedness for when markets are engulfed in fear and quality assets are dumped. Pursuing the simple goal of outperforming the S&P 500 long-term, he has consistently kept funds in reserve for opportunistic buys during downturns.

In 2016, he reiterated to investors that “cash ready for bargains” is a crucial element supporting Berkshire’s compound growth.

Delegating Management and Ensuring Continuity: Designing Organizational Longevity

Buffett concentrates ultimate decision-making authority over capital allocation but delegates daily management to capable executives. He highly values experienced managers, praising individuals like Rose Blumkin (the “B” lady"), who led her furniture empire until age 103. They jokingly promised to meet on each other’s 100th birthdays.

Since 2005, succession planning has been openly discussed, making it clear to investors that capable, prepared candidates are in place.

The Timeless Significance of Buffett’s Philosophy

As Warren Buffett steps away from the forefront of management in 2025, his legacy will remain as wit, wisdom, and unwavering discipline. In an era dominated by hype, speculation, and short-term market noise, his core messages—patience, a return to fundamental values, contrarian courage, and rational capital management—are more vital than ever.

Investors who deeply understand the teachings of the Oracle of Omaha may not be able to predict the next bubble precisely. However, they will be far better prepared to withstand its arrival and impact. Market cycles repeat, and fear and greed will reappear time and again. The ability to foresee and respond to these patterns will distinguish true investors from the rest.