A young investor named Warren Buffett took control of Berkshire Hathaway, a failing textile company fifty years ago. In an annual letter to shareholders, released over the weekend, Buffett said, "I found myself ... invested in a terrible business about which I knew very little". He said that I was like the dog that caught the car.

While describing about his earlier days, Buffett wrote that at that time his approach was just like 'cigar butt' investing. He said that his move of buying shares of troubled companies with underpriced stocks was like picking up a discarded cigar butt that was left with just one puff. He mentioned that though the remains were ugly and soggy, but the puff was free.

He continued that in those early years he received gains from the investments in mediocre companies that traded at bargain prices.

Buffett's approach also had limitations. Charlie Munger, the Los Angeles lawyer who was his sidekick for a long time, showed him the other way of winning at the investing game.

Munger told Buffett that you should forget all that you know about buying fair businesses at wonderful prices and should try to buy wonderful businesses at fair prices.

Buffet followed his advice and did it in two ways. In his first way, Buffett bought stock in some of the great American companies of our time. The stock was the same that he has held not just for years, but for decades.

In his second way, Buffett transformed Berkshire Hathaway into a true conglomerate, which not only owns stocks, but entire companies.

No matter Berkshire's front office has only 25 employs, as the companies under it have around 340,500 employees in total.

Another important thing about Buffet is that he never got caught up in fads. He believes in buying only those businesses that he understands and can foresee where the business will reach in a decade.