Investing is essentially a matter of faith

Buffett holds a company for decades not because of buying low and selling high, not because of profiting from price spreads, but because of conviction.

Decades ago, when making that investment, there were three things he needed to see clearly.

The first: did he believe that the United States would remain the global leader decades from now?

The second: did he believe that decades from now, this company's products would still be widely needed by humanity?

The third: did he believe that decades from now, this company would still be the leader in its industry?

Zhao Duyang once asked Buffett a question: "I'm very bullish on a company, but its stock isn't rising." Buffett said, "Wait for it to rise." Zhao Duyang pressed on: "I've waited a long time, and it still hasn't risen." Buffett replied, "Patiently wait for it to rise." Zhao Duyang finally said, "I've waited a very long time, and it still hasn't risen." Buffett then said, "That means you were wrong about the direction."

Buffett's strategy is extremely simple: as long as the price falls into a range he considers reasonable, he buys. He doesn't care whether the stock continues to drop over the next one or two years—he doesn't care at all.

What is the biggest problem with this strategy?

It's that if the company's executives keep reducing their stakes, if the company never truly intends to last 100 years, or if the company eventually exits the market after a prolonged decline, then Buffett's directional bet was wrong.

The fourth thing: Buffett is essentially buying into the team. In common parlance: Do I believe in this team?

He isn't trying to profit from short-term spreads. His decisions are based on conviction.

If you view the world as a single company, what Buffett is doing is simply picking a side. He follows a leader he trusts, follows a division he believes will endure long-term, and then holds shares in that division. If that leader loses power in corporate competition, he loses. If the leader stays in power but restructures the division below them, he also loses.

So what is his decision metric? Direction.

He doesn't consider market waves—he considers direction. Investing tests investors on only one thing: your ability to see the right direction. As long as you get the direction right, intermediate setbacks don't matter. After all, as an investor, you're low-leveraged, you practice long-termism, and your cost is simply time. If your direction is wrong, your time is wasted entirely.