Investors are often tempted by the seemingly low prices of shares in declining businesses, especially when these companies pay attractive dividends. However, Warren Buffett strongly advises against this approach, despite starting his career by investing in what he called “cigar butt” businesses—companies offering just a few remaining puffs of profitability.
Buffett emphasizes that focusing on healthier, growing businesses yields better long-term results. “The same amount of energy and intelligence brought to other types of businesses is just going to work out better,” he said during the 2012 Berkshire Hathaway Annual Meeting.
He warned that declining businesses often come with unrealistic projections and limited future potential. “If you really think a business is declining, most of the time you should avoid it,” Buffett noted. Instead, he highlighted that the greatest returns come from investing in companies with solid growth prospects, urging investors to prioritize such opportunities over short-lived bargains.
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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.