Investing in businesses on the decline might seem like an opportunity, especially when their stock prices appear low and dividends are still flowing. However, legendary investor Warren Buffett advises against this approach.
During the 2012 Berkshire Hathaway Annual Meeting, Buffett cautioned investors to steer clear of declining businesses, regardless of how cheap they may appear. He acknowledged that early in his career, he sought out what he called “cigar butt” businesses — companies with just a little life left. However, he later realized that the same effort and intelligence applied to healthier, growing businesses would yield far better returns.
“You’d be amazed at the offerings of businesses we get where they say it’s only six times EBITDA,” Buffett remarked, dismissing optimistic projections of struggling companies. He emphasized that the real profits lie in businesses with strong growth potential, not those in decline.
For investors seeking long-term success, Buffett’s advice is clear: focus on companies with bright futures rather than chasing fleeting value in dying enterprises.
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© 2025 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.