Warren Buffett's Top 5 Timeless Investing Gems

Let me cut to the chase. Warren Buffett has taught so many nuggets of wisdom to investors, it's hard to name them all.  

Here's is my top 5 "Buffett Gems" that have influenced my investment style and how I quantify them:

Gem #1: Approximately Right Beats Precisely Wrong

Warren Buffett often says, “It’s better to be approximately right than precisely wrong.” That’s why he emphasized investing in your area of competence — only in companies you truly understand. This means understanding the drivers behind customers, suppliers, and competitors. 

While this quote is originally attributed to economist John Maynard Keynes, Buffett applied it more effectively than anyone I know. 

Valuation is always an approximation; if cash flows are too uncertain, trying to value a company becomes pure speculation.

Gem #2: Owner Earnings Are What Matter

On Wall Street, endless metrics can easily clutter an investor’s mind. If you want to focus on what matters for stocks over the long run, focus on this metric — owner earnings.

Owner earnings is a base-case estimate of the cash flow a company can generate for shareholders. It’s similar to free cash flow to equity, formally calculated as:

Free cash flow to equity = Net Income – (Capital expenditures – Depreciation) – (Change in non-cash working capital) – (New debt issuance + Debt repayments).

Conceptually, stockholders have cash flow available to them as owners after paying all expenses, backing out non-cash items, funding capital expenditures, covering working capital needs, and repaying debt. What’s left is owner earnings. Ultimately, according to Buffett, a company’s intrinsic value is the present value of its future cash flows.

Gem #3: Durable Earnings Power Compounds Wealth Over Time

This means seeking businesses that can generate sustainable cash flows because they have a real competitive advantage. Advantages can take many forms: pricing power, dominance in a niche, scale and supplier leverage, or a highly desirable brand. 

The longer the competitive advantage period, the better the investment and the more you can justify paying up for it.

Gem #4: Always Ask, 'How Much?'

Buffett’s fourth gem is about margin of safety. Investors must accept that their estimates will inevitably be off. The solution is to be conservative with cash flow assumptions to give yourself room to be wrong. 

If a company still looks attractive under conservative scenarios, you’re less likely to lose money and more likely to achieve strong returns. 

This ties directly into Buffett’s two core rules: rule number one is don’t lose money; rule number two is don’t forget rule number one.

Gem #5: Buy Companies That Require Less Capital

Buffett favors businesses that require minimal capital and can achieve high returns on that capital — ideally with little debt. This enables faster growth, share buybacks, or rational dividends. Crucially, management must be thoughtful in allocating capital: repurchasing shares when prices are low, reinvesting in growth, making disciplined acquisitions, and paying dividends wisely.

All five of these factors have shaped my approach to selecting long-term equity investments.

Analyzing the Numbers to Find the Gems

One way that I adopted these five Buffet Gems has been by translating them into financial scores that I can apply to all the publicly traded companies.

I developed quantitative metrics to help identify companies that embody these characteristics. I call this framework QVT, which stands for Quality, Value, and Technical. I built QVT just before the dot-com bubble and have refined it ever since. The quality and valuation components are deeply rooted in these Buffett principles.

The quality score measures key financial statement fundamentals relative to peers and the broader market, highly ranking companies with low debt, high returns on capital, and strong profitability. 

The valuation score assesses a stock’s price relative to cash flow, growth, and asset values. 

The technical score — which I call TORQ — captures trends, overbought/oversold, relative strength, and quality supply and demand patterns in price. This signals whether the market is recognizing the company's growth. Buffett wanted to see that earnings growth is reflected in market value, a sign of true earnings quality.

These five gems are burned into my mind and guide me each time I evaluate an investment opportunity. I’d like to hear from you. What have you learned from Buffett? How have you incorporated his philosophy into your own investing? 

Happy investing!