Buffett says this is the key to happiness in stock ownership

Buffett has a simple test for every stock he buys: Would he be happy to own it if the market closed for 10 years? If the answer is no, he doesn’t buy it.

This philosophy explains why he built a $344 billion cash hoard while other investors chased stocks that might be overvalued as the stock market surged in 2025. It’s also what helped his company achieve annual returns of more than 20% for four decades, yet many investors still ignore it.

Buffett’s core belief: The 10-year test

Buffett’s investment philosophy centers on one powerful idea: If you’re not happy owning a stock when the market is closed, you shouldn’t own it when the market is open.

On the day Berkshire Hathaway Inc. listed. (BRK.A, BRK.B) on the New York Stock Exchange in 1988, Buffett told specialist Jimmy Maguire that he would consider it a huge success if the next deal in Berkshire shares took place two years later. While Buffett said Maguire didn’t seem keen on the idea, Buffett was making a serious point about how he views stocks as ownership stakes in real institutions, not lottery tickets.

From 1965 to 2024, Berkshire Hathaway stock returned 5,502,284%, compared to a return of 39,054% for the S&P 500. This gives Berkshire Hathaway shares an average annual return of 19.9%, about double the S&P 500’s return of 10.4% over the same period.

Long term perspective

Here’s the uncomfortable truth: Constantly checking your investment portfolio doesn’t make you richer, it may just stress you out. Research has shown what Buffett discovered decades ago: treating the stock market like a daily scoreboard destroys your wealth and your peace of mind.

For example, there is evidence that the more investing apps urge you to “check now,” the worse your decisions become. In a large randomized trial of over 9,000 participants, the UK Financial Conduct Authority found that game-like design elements (such as push notifications, leaderboards, and prize draws) directly increase trading frequency and risk behavior – without providing any additional useful information.

Complementing this, a study of 15,000 customers at two German banks showed that when the same person trades on a smartphone, they are more likely to buy volatile “lottery-like” stocks and chase new winners than when they trade on a PC. It’s studies like this that have experts worried about finances being manipulated by some investment apps that contain psychological hooks that resemble slot machines.

Quality over timing

The practical application of Buffett’s philosophy involves shifting from a speculator’s mentality to an owner’s perspective. Instead of asking, “Will the stock price rise tomorrow?” The question becomes, “Will I be comfortable owning this business for the next decade?”

We see this with Buffett’s core holdings. Companies like Coca-Cola (KO), American Express (AXP), and Apple (AAPL) are companies with enduring 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.

Key characteristics Buffett looks for include strong management teams, predictable earnings, minimum capital requirements for growth, and dominant market positions. As he pointed out in a letter to Berkshire Hathaway shareholders, companies that require significant reinvestment just to maintain their position rarely create lasting wealth. He instead prefers companies where “their retained earnings effectively translate the dollar you retain into a dollar or more of subsequent market value for us.”

In other words, Buffett wants companies to be able to take their profits and turn them into greater value for shareholders without constantly needing huge new investments just to stay competitive.

Bottom line

To replicate Buffett’s approach, you can start by evaluating your investment opportunities as if you couldn’t sell them for a decade. Will you sleep well at night? If not, think about why you have it in the first place. Then, before making any new purchase, imagine explaining to your friend why you’re happy to hold that stock for a decade, without explaining how you hope the stock price will rise significantly.

This approach can help guide you toward high-quality companies with predictable profits, strong competitive positions, and competent management teams. These are exactly the characteristics that Buffett has emphasized throughout his career as the foundation for successful long-term investing.