(3 of 3)
That strategy has become famously simple. "He looks at the stock market as a place where businesses are occasionally on sale at a discount, and when he finds them he just buys them and holds them," Lowenstein says. "It's almost the way a person might buy a house. You find a house and you buy it because you like it and want to live there and hope it will appreciate."
This homey philosophy doesn't always pay off. Berkshire Hathaway's profits fell 28% last year to $494.7 million, as the value of its holdings of USAir and Salomon Brothers slumped. With USAir tottering near bankruptcy, Berkshire had to write off three-quarters of its $358 million stake in the troubled airline.
The most embarrassing failure was at Salomon, where a Buffett-inspired compensation plan compounded financial woes. As the largest shareholder, he had stepped in as acting chairman after a government-bond trading scandal nearly shattered the firm in 1991. But when Salomon scrapped its system of awarding nearly automatic multimillion-dollar bonuses--a system that struck Buffett as absurd--in favor of incentives tied to profits, more than two dozen traders and investment bankers quit. This was not the first time Wall Street's most successful investor was at odds with its culture. He might say it's the secret of his success.
--With reporting by Jane Van Tassel/New York