The Cigar-Butt Approach
Buffett was a student of Benjamin Graham, the original father of value investing. For many years in Berkshire, Buffett used what he calls the "cigar-butt" approach. Finding companies at cheap values that have been discarded by the market, but still have a "puff" or two left in them. He would buy these companies, wait for them to reach their intrinsic value after proving they aren't dying companies, then sell. This would work for a long time and give him many doubles or triples, but then he would have to sell and selling hurt Berkshire in a couple ways. First, it was a realized gain and second, the opportunity cost of needing to find a new company to sink the new found cash into. This was a valid and very successful approach at the beginning, but as Berkshire scaled, it became harder and harder to implement. Many of the companies that qualified using the cigar-butt approach were smaller in size and market cap. This meant that even a double or triple wouldn't move the needle for Berkshire's portfolio. If you have $10 and turn one of those dollars into 3, that's a triple, but only increases your portfolio size by 20%. Berkshire had to think of another approach.
Munger's Advice
At around the same time Charlie Munger, Buffett's right hand man, thought of a better and more scalable approach. He convinced Buffett that buying great companies at a fair price was better than buying fair companies at a great price. The latter representing Buffett's earlier cigar-butt approach, and the former representing the future portfolio of Berkshire. Buffett retells that See's Candy was sold to them and if the seller had raised the price any further they wouldn't have bought it. Given the compounding See's has done since their purchase, Buffett admits how much of a mistake it would have been to pass up on such a good company for a fair price. Coca-Cola, Geico, Apple, and others were all an outcome of Munger's advice. Investing in these great companies has allowed Berkshire to grow tax free alongside them and the runway these companies have had allows Berkshire to hold them for decades until today.