Warren Buffett is possibly the greatest investor who ever lived. His success is a testament to the power of compound interest, good judgment, and relentless focus. Although he is publicly known as an avuncular, jolly businessman who enjoys the simple life, a closer look at his record reveals a ruthless operator with a clear focus on building long-term value.

Buy the Business, Not the Stock

Many investors and traders make the mistake of letting their emotions affect their decision-making. In one sense, this is unavoidable since humans are biological creatures and these emotions evolved for survival purposes. Following the herd makes sense when picking what berry to eat or what lake to drink from, but it can be disastrous when buying assets.

Buffett circumvents this entire emotional pitfall by ignoring the stock's market value and focusing on its intrinsic value as a business. One mental exercise he uses is to imagine how he would feel if he bought the business or a piece of the business and then the stock market shut down for the next 20 years. If he finds himself uncomfortable at the thought, then he passes and waits for a better opportunity.

This is one advantage for Buffett as he is able to stay rational and take advantage when the rest of the market becomes particularly driven by emotions.

Protect Your Capital (Mental and Emotional)

Buffett's first rule of investing is "don't lose money", and his second rule is "check rule #1". Although it's a joke, it does emphasize the importance of protecting capital. The real benefit of protecting capital is to ensure that it's available when a fantastic opportunity emerges. If you've lost chunks of capital in less ideal investments, then you might not have the resources to take advantage of the really good opportunities.

Similarly, investors also need to protect mental capital by not chasing too many things at once. Buffett has applied this to the extreme. In his personal life, he famously does little other than reading investment reports and playing bridge, while he patiently waits to deploy his capital.

Buffett has analogized investing to baseball with the exception that there are no strikes and balls, so an investor can see unlimited pitches. He adds that in an entire career, one may only get between 20 to 30 compelling opportunities, and investors should swing as hard as possible at each one. Of course, implicit in this is the preservation of emotional and mental capital as prerequisites.