Legendary investor Warren Buffett has shared his unique approach to evaluating companies, and it involves focusing on a specific financial document. Unlike many Wall Street analysts who prioritize income statements, Buffett places greater emphasis on balance sheets when making investment decisions.
The Balance Sheet Advantage
Speaking at Berkshire Hathaway's 60th annual general meeting in 2025, Buffett explained his methodology in clear terms. He stated that he spends more time examining balance sheets than income statements. The billionaire investor believes balance sheets provide a more reliable picture of a company's financial health over time.
Why Balance Sheets Matter More
Buffett revealed that he typically reviews balance sheets over an eight to ten-year period before even considering income accounts. His reasoning is straightforward: certain financial realities are harder to conceal or manipulate on a balance sheet compared to an income statement.
"There are certain things it's harder to hide or play games with on the balance sheet than you can with the income statement," Buffett explained during the meeting.
He acknowledged that neither document provides a complete answer about a company's prospects. However, he emphasized the importance of understanding what the numbers reveal and what they might conceal.
Monthly Financial Review
The investment icon also disclosed his regular review process. Buffett examines financial statements from approximately fifty to sixty Berkshire Hathaway companies every single month. This consistent monitoring allows him to stay deeply informed about his investments.
He added an important perspective about financial documents: "You still ought to understand what the figures are saying and what they don't say. What they can't say, and what the management will like them to say, what the auditors wouldn't like them to say."
Learning From Financial Documents
According to Buffett, balance sheets contain valuable lessons that most investors overlook. "There's just a lot to be learnt, and you do learn more from balance sheets, in my view, than most people give them credit for," he stated.
This approach represents a significant departure from Wall Street's typical focus. Buffett noted that most financial professionals pay little attention to balance sheets, preferring instead to concentrate on income statements and earnings reports.
The Trust Factor
During the same annual meeting, Buffett addressed another crucial aspect of his success: trust. When asked about when to act urgently despite his famous patience, he highlighted the importance of trust in business relationships.
"One of the great pleasures – it is the great pleasure actually in this business – is having people trust you," Buffett shared. He explained that this trust motivates him to continue working at age ninety-four, despite having more wealth than he could possibly need.
Building Trust Over Decades
Buffett reflected on his partnership with Charlie Munger, noting that both men cherished the trust people placed in them. This trust began sixty or seventy years ago with their early investment partnerships.
He revealed an interesting detail about their approach: "We never sought out professional investors to join our partnerships. Among all my partners, I never had a single institution – I never wanted an institution. I wanted people."
Buffett specifically avoided institutional investors who required regular presentations and expected to hear what they wanted to hear. Instead, he preferred individual investors who trusted his judgment and approach.
Leadership Transition
It's worth noting that Buffett has since stepped down as CEO of Berkshire Hathaway. His successor, Greg Abel, officially took over leadership responsibilities in January 2026. This transition marks a new chapter for the legendary investment firm.
Despite this change, Buffett's investment philosophy and approach to financial analysis continue to influence investors worldwide. His preference for balance sheets over income statements offers valuable insight into how one of history's most successful investors evaluates opportunities.
The Oracle of Omaha's methods demonstrate that sometimes, the most effective investment strategies involve looking beyond conventional wisdom. By focusing on balance sheets and building trust over decades, Buffett has created an investment legacy that continues to inspire financial professionals and individual investors alike.
