Of the extraordinary events on world financial markets in the past fortnight, there's one that should make you sit up and take notice: a huge play by billionaire investor Warren Buffett.

Until now America's second richest man after Bill Gates has been content to sit on the sidelines and issue the occasional dire prediction for the financial system, only last week describing the situation as "an economic Pearl Harbour" in reference to the surprise attack by Japan in World War II.

But on Wednesday the man revered as the world's best investor sank $6 billion into beleaguered US investment bank Goldman Sachs, which along with Morgan Stanley was one of the surviving two on Wall Street (both have now converted to commercial banks so they can raise money from deposits).

In response, our market - despite a negative lead from the US - rose 1.2 per cent as investors followed his lead and piled into financial stocks.

So what makes one, albeit large, investment on the other side of the world so influential? Quite simply that it was made by Buffett. The man's investment prowess is nothing short of legendary. The Berkshire Hathaway fund that Buffett runs has made a compound annual return of 25 per cent over the past 30 years, roughly double that of the S&P 500. A single share will set you back more than $US133,000 ($160,000).

He has managed this phenomenal return by investing in a succession of unsexy businesses - think insurance, banks and trains - in line with perhaps his most quoted investment axiom: don't invest in something you don't understand. Which is why he also famously avoided the dotcom bubble. His predilection for the pedestrian saw him miss the boom - and subsequent bust. He was heard to say at the time he couldn't understand how companies with no earnings and no assets could be worth small fortunes. Not for long.

Buffett has seen his reputation for divination rise a further notch courtesy of the current crisis. Since 2002 he has been warning about the dangers of excessive gearing and derivatives - the "financial equivalent of weapons of mass destruction" - which hedge funds have used to target highly leveraged companies and drive down share prices. So it's not just Buffett's successes, but also his ability to avoid failure that makes people take notice.

The 77-year-old, who is worth an estimated $40 billion, essentially looks for quality, well-managed companies that are undervalued by the market. And he is prepared to wait. Probably one of his most ignored mantras is: "Don't get rich quick."

Buffett's investment philosophy has ensured he is perfectly positioned - cashed up with very little debt - to take advantage of a market meltdown that has seen good companies punished with bad.

His Goldman Sachs move assumes Congress will pass the $US700 billion bank bail-out, which would buy and then quarantine the so-called toxic mortgages, provide relief to homeowners in danger of default and cap the salaries of the Wall Street high flyers responsible for creating the mess.

On the bail-out, he says it's "absolutely necessary, in my view, to really avoid going over the precipice".

Buffett's betting that it will, firstly, go ahead and, secondly, restore sanity to the market. Let's hope that, once again, he's right.