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Rupert Hargreaves
Rupert Hargreaves
Articles (856)  | Author's Website |

Warren Buffett: There Will Always Be Opportunities for Value Investors

Some thoughts from the Berkshire Hathaway 2010 annual meeting

July 12, 2019 | About:

I've noticed that there has been a recent spike in articles claiming that value investing is dead, and the best way for any investors to make money in the current market is to own a basic index fund.

I think it is always interesting to review these articles and try to understand the authors' viewpoints. But I'm also generally skeptical about the idea that value investing has or ever will die.

When I say value investing, I mean the idea of value investing as initially proposed by Benjamin Graham and David Dodd, i.e., buying dirt cheap stocks compared to the asset value. All investing is, in a way, value investing, as in every investor wants to buy a company at a discount to its intrinsic value. But I am trying to draw a distinction here between these two styles, which are very similar but different at the same time.

The value cycle

Value investing or deep-value investing go through phases. Much like economic cycles, deep value investing goes in and out of favor with the market environment. And right now we are in a period where the value is generally considered to be dead, although this isn't the first time.

The last time this occurred was back in 2006 or 2007, just before the financial crisis when it looked as if equity markets would continue rising indefinitely forever.


Notes from the Berkshire Hathaway annual meetings around this time are fascinating because they give us an insight into what the Oracle of Omaha was thinking, in the midst of one of the most volatile market environments of all time.

At the 2010 annual meeting, one shareholder asked Buffett for his thoughts on the state of value investing before, during and after the market meltdown of 2008 to 2009.

Buffett responded by saying that while many investors believed valuing diversity had died in the years before the crisis, "There will probably be fewer, but I would say there will always be — except in the most bubbly of markets, perhaps — but there will always be opportunities if you're not working with large amounts of money."

Buffett has said before that he believes he could still trounce the market in any environment, if he was managing smaller amounts of money, and these comments seem to be reiterating this point. He went on to say:

"But if you manage moderate sums of money, I think there will always be opportunities to overperform. That doesn't mean lots of people are going to do it, but they will be out there. And, you know, it might have been easier many years ago when there were fewer people looking and not as much information was available on the internet and all that. But people still make the same mistakes."

He went on to give the example of the Daily Journal Co., managed by Charlie Munger (Trades, Portfolio). In the middle of the financial crisis, the Daily Journal invested virtually all of its cash reserves in a concentrated portfolio of stocks, which has since grown to be worth more than $150 million.

"In their fiscal year of 2019," Buffett explained in 2009, "they never bought stocks before I'd seen, and all of a sudden they'd bought $15 million worth of stocks and they were worth $45 million."

Here's a company that never had invested in the stock market before, but suddenly had an equity portfolio worth $45 million.

"So by sitting around for a while, but waiting until things got really ridiculous in certain cases, he put $15 million out that became $45 million within, probably, a six month period or so," Buffett summarized.


Based on these numbers, the Daily Journal shareholders made a return of 200% in around six months. This is an excellent example of why it pays to wait for the perfect opportunity. You might feel as if you are missing out as the bull market continues to grind higher, but the returns available by waiting for the ideal opportunity are far superior to the average market return. This approach isn't suitable for everyone, because it requires a lot of discipline and patience, but the returns cannot be disputed.

Disclosure: The author owns shares in Berkshire Hathaway.

Read more here: 

Finding Value the Jean-Marie Eveillard Way 

Hedge Funds Roar Back in 2019 but Stock Pickers Suffer 

Warren Buffett's Giant Silver Trade 

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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 (5 votes)



Slcscottie premium member - 6 days ago

Excellent time for this article while I wait for an opportunity to reinvest a portion of my portfolio.

Jtdaniel premium member - 6 days ago

Hi Rupert,

Nice work and definitely timely. I think that regional banks and at least second tier industrials can still be intelligently evaluated as cheap or dear by traditional valuation metrics like price to book. I am not ordinarily that kind of value investor, but I was fortunate to find Ethyl Corporation in 2000 and Banco Popular in 2007. The bifurcated market of 1999-2000 created great opportunities in the old smoke stacks as most of us baby boomers chased Dell and Cisco far beyond their business value. Popular of course got caught up in the subprime mortgage fallout but had the resilience to survive.

Stephenbaker - 6 days ago    Report SPAM

Buffett would probably need to widen his circle of competence in order to produce the suggested results today, even with relatively small sums of money. It seems to take more than being able to evaluate a series of assets and financial statements. Investing success today requires an ability to evaluate a story, an industry and even certain unknowns, and extrapolate what may eventually come to be. Simply buying beaten down financials and industrials at value-like prices may do OK but will not generate anywhere near Buffett's stated objectives. One needs to focus on innovation and uncover the few companies that have both the talent to create along with skills necessary to properly allocate capital in order to achieve profitability. There will always be companies that meet this criteria, but discovering them and being willing to take a stake in their future is obviously not easy. An interest and ability to learn about new products and services is vital. Not everyone can do it - I struggle trying to stay awake reading about certain companies I already own, let alone companies on the cutting edge of activities that I can't even understand. But that is what is necessary to have any chance of materially outperforming indices.

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