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Rupert Hargreaves
Rupert Hargreaves
Articles (978)  | Author's Website |

How Would Buffett Invest as a Value Investor Today?

Some comments from Buffett on how to manage a value portfolio

October 01, 2019 | About:

Where would Warren Buffett (Trades, Portfolio) invest his money today if he were starting out on his investment journey? This is a question that's been asked many times over the past few decades. Buffett has never provided a clear answer.

Partly because the Oracle of Omaha dislikes giving out stock tips, and partly because doing so would inspire accusations of market manipulation, Buffett only tends to hint at where he would invest when asked.

That being said, on at least one occasion, he has given investors enough information to go out and find bargains on their own.

Investing in Korea

This occasion was at the 2006 Berkshire Hathaway annual shareholder meeting. At the meeting, one shareholder asked Buffett, "If you were starting out today with a million dollars, with a vision of building a business with 20% average growth in value over 40 years, what type of investments and investment strategy would you look to make in the first five years?"

Buffett responded by saying if he were to "succumb to Satan" and engage in value investing once again, "We would look around the world." One area he would have looked at in particular was Korea. "You know, I think if I'd been running a partnership a couple of years ago with a small amount of money, I think I'd have probably been 100% in Korea," Buffett stated.

"I would be looking around for something that was very mispriced that I understood. And every now and then, that's going to happen," he added.

Buffett's personal investment

What is interesting about this statement is that Buffett has always said that he prefers to invest in markets he understands. That's why Berkshire's investment activity has been mostly limited to the U.S. These comments from Buffett seem to suggest that he would be happy to invest outside the U.S. if the opportunities were there.

Now we know that Buffett did take advantage of the opportunities in Korea during the first few years of the 2000s. In late 2005, in a talk with Harvard students, Buffett stated:

"Citicorp sent a manual on Korean stocks. Within five or six hours, 20 stocks selling at 2 or 3x earnings with strong balance sheets were identified. Korea rebuilt itself in a big way post 1998. Companies overbuilt their balance sheets – including Daehan Flour Mill with 15,000 won per year earning power and selling at '2 and change' times earnings. The strategy was to buy the securities of 20 companies thereby spreading the risk that some of the companies will be run by crooks. A hundred million dollars was quickly put to work."

It seems he made this trade with his own money, rather than Berkshire's. Still, it is interesting to note that Buffett was happy to buy deep value not so long ago.

A scatter-gun approach

These comments give us a great insight into Buffett's way of thinking and are useful for value investors who want to build a portfolio today. What the CEO of Berkshire seems to be suggesting is that it is best to concentrate your investments where the value is most apparent. Today, you could argue that Japanese stocks fit the bill here.

Also, it seems Buffett advocated using a scatter-gun approach, buying a basket of the cheapest stocks and letting value do its work. This is instead of a research-based strategy.

Considering that Buffett has followed a quality mantra since the early 1970s, it's fascinating to see that as late as the mid-2000s he not only continued to believe that deep value investing had its merits, but that he was investing along these lines in his personal portfolio as well.

Disclosure: The author owns shares in Berkshire Hathaway.

Read more here: 

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That Time Buffett Issued Stock to Buy Diamonds

3 Lessons From WeWork's Downfall

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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

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