Buffett's actions draw a strong distinction between a speculator and an investor — the former trying to cash in on short-term fluctuations and emotional movements of stock price, the latter interested in the underlying quality and long-term prospects of a company. These observations are drawn from the book Buffett, by Roger Lowenstein.
Buffett stuck to industries he knew well. When the investment environment presented him with new challenges he didn't understand, he got out until he felt comfortable again.
"Diversification had become an article of faith; fund managers were commonly stuffing their portfolios with hundreds of different stocks. Paraphrasing Billy Rose, Buffett doubted that they could intelligently select so many securities any more than a sheik could get to 'know' a harem of one hundred girls."
However, Buffett's objections are largely targeted at professional investors. Lowenstein doesn't go into detail, but if your specialization is outside of investing, diversification may be a decent strategy.
Even with his great success, Buffett was always cautious and didn't presume he had better information than others. Perhaps he only excelled at using that information more wisely.
Buffett said: "I have never met a man who could forecast the market," and "Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."
But his secrets were simple: "You try to be greedy when others are fearful and you try to be very fearful when others are greedy."
Operating in this counter-cyclical manner allowed Buffet to get solid assets while they were cheap and, most likely, unload less impressive assets while other investors were willing to pay more for them.
This principle extends to borrowing. "If you wait until you need a loan, it is likely to be when others are also borrowing, when?per force?rates will be higher."
Lowenstein explains this concept as Buffett did to the manager at Berkshire when he purchased it as a textile firm.
"He didn't particularly care how much yarn Chace produced, or even how much he sold. Nor was Buffett interested in the total profit as an isolated number. What counted was the profit as a percentage of the capital invested."
"He told Chace not to bother with quarterly projections and other time-wasters. He merely wanted Chace to send him a monthly financial report and to warn him of any unpleasant surprises."
"Buffett did not think of Berkshire necessarily as a textile company, but as a corporation whose capital ought to be deployed in the greenest possible pastures."
Buffett developed many of his investing principles from Graham and Dodd who argued, "The market... was not a 'weighing machine' that determined value precisely. Rather, it was a 'voting machine,' in which countless people registered choices that were the product partly of reason and partly of emotion."
He was also influenced by Charlie Munger and Philip Fisher, "each of whom stressed good, well-managed companies as distinct from statistically cheap ones."
"...one's house is not quoted day-by-day, and most people do not lose sleep over it's value."
"Ultimately... there were only three ways to avoid a tax: 1) to give the asset away, 2) to lose back the gain, and 3) to die with the asset..." Buffet believes "...people's emotional distaste for paying taxes blind[s] them to acting rationally..."
He also comments on how the disconnect between political preferences and those of the taxpayers may be similar to the disconnect between a corporate manager and that of their shareholders: "Many corporate managers deplore governmental allocation of the taxpayer's dollar but embrace enthusiastically their own allocation of the shareholder's dollar."