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Rupert Hargreaves
Rupert Hargreaves
Articles (802)  | Author's Website |

Is Warren Buffett Still a Deep Value Investor in His Spare Time?

Evidence suggests the Oracle of Omaha has found bargains in South Korea and Japan

April 24, 2019 | About:

On many occasions in the past, I have written about how vital investment research is when it comes to reducing risk. Risk comes from not knowing what you are doing, and in-depth, detailed fundamental analysis is essential to make sure that you do know what you are doing.

What's more, if you really know and understand the stocks you own, the chances of you making a mistake and selling out at the bottom of the market are significantly reduced.
However, while I still believe the above to be true, I recently stumbled across a Google talk with Mohnish Pabrai (Trades, Portfolio) in which he discussed the drawbacks of doing too much research.

The talk is fascinating and well worth a watch if you have the time, but what I found even more exciting is Pabrai's insight into some recent trading activity by Warren Buffett (Trades, Portfolio).

Buffett's deep-value plays

When he was running the Buffett Partnerships, Buffett frequently traded cigar butt style stocks, in fact, that is all he traded because there were plenty of opportunities available in the market at that time.

However, when he closed the partnerships, he told his partners he was doing so because the number of deep value opportunities was dwindling, and it didn't make sense to chase the few that remained.

So, based on these comments, and his trading activity since, it is widely assumed that he stopped buying deep-value cigar-butt style stocks when he started managing Berkshire Hathaway full time.

But according to Pabrai, Buffett still trades deep value stocks from time to time:

"And then in 2005, [Buffett] told the students just a year before he met them, someone sent him a Korean stock market guide – I've actually seen it, it was put out by Citibank – and he spent about five or six hours on a Saturday going through this list of Korean companies with just some of the basic information. And he picked out about 20 companies from that list, and he put about a $100 million of his personal portfolio into those 20 companies. And so for example there was Daehan Flour, which sold about one-fourth of the flour in South Korea, it had earnings of 13,000 won three years ago; 18,000 won, two years ago; 23,000; a year ago; and it had over a 100,000 won per share in equities and the whole thing was going for 38,000 won. So he did very well with his Korean escapades without really knowing a whole lot about the businesses. He just kind of went through them just purely on a quantitative basis."

And there's evidence to suggest that Buffett was buying Japanse value stocks 2011. In his talk Pabrai goes on to say:

"And then in 2011 my friend Guy Spier and I found ourselves in Warren Buffett (Trades, Portfolio)'s office and you can see on the right there's the Japan Company Handbook...So I asked him about it, because in 2011 Berkshire Hathaway, they can't buy Mickey Mouse companies ... of course he puts on a poker face and doesn't say anything. And then I picked up the book and Guy and I dog-eared some of the pages of companies that we had found that were interesting. So without asking him, we kind of mutilated his copy and most of these companies were towards the back of the book. He says, yeah, and it's always the case, it's really the backend is when all the good stuff shows up. And then of course he doesn't tell us anything more about what he did with that, but that was during daytime hours at Berkshire Hathaway is what he's doing."

These comments from Pabrai seemed to suggest that the Oracle of Omaha has not entirely left his deep value roots behind him.

The other takeaway from these actions is that while Buffett has established a reputation for himself as a thinker and man who is willing to spend years researching a company before he invests, with these deep value stocks, he doesn't spend too much time analyzing the businesses. He's just looking for a handful of cheap, cigar-butt style stocks without having to spend too much time on each business.

So, sometimes it may be acceptable not to spend too much time on the research process.

Disclosure: The author owns shares in Berkshire Hathaway.

Read more here: 

Understanding How Our Brains Work Is a Key to Successful Investing

Using Michael Porter to Find Good Businesses 

Klarman: Find Your Edge and Stick to It 

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 5.0/5 (1 vote)

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Comments

vgm
Vgm - 3 weeks ago    Report SPAM

Thanks for the interesting article, Rupert.

In an extensive interview with the FT a couple of days ago, Buffett repeated that if he or Munger were working with $1M they could easily do 50% a year. Perhaps some of that would involve the foreign stock market approaches mentioned by Pabrai and you.

Rupert Hargreaves
Rupert Hargreaves - 3 weeks ago    Report SPAM

Thank you for the comment.

I read the interview as well, and I 100% agree. I wouldn't be surprised at all if that is what he does in his spare time.

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