Comments on: Is Warren Buffett Really a Value Investor?

By: Jason

Jason — Fri, 30 Mar 2007 08:53:42 +0000

To be fair, I think EVERYONE is a value investor. No one wants to pay more for something then its worth.

But there are a couple of factors in play. First of all, as people have noted, Berkshire is big, so it will be hard to find large, deep value companies. Secondly, Warren Buffet has moved very far away from the traditional Ben Graham approach of Net-Net stocks, or cigarette butts. If he were running a fund, his approach would probably be described as a concentrated growth-at-a-reasonable-price (GARP) strategy.

This closely parallels his evolution as a businessman – one of the things Buffet has been very, very good at it is figuring out which companies can generate a wide economic moat. That is no small task – and certainly not something that jumps off a balance sheet. Perhaps one reason why he shifted from being a pure Graham investor to a GARP type investor is an increasing confidence in his ability to value the intangibles.

By: Mike

Mike — Wed, 28 Mar 2007 22:57:26 +0000

Rob,

I agree with your last statement. I tried to say something similar in my clumsy way. At this point in his life Warren doesn’t want to comb through 1000 small opportunities in classic value investing style. If he can only do 5 deals a year, they all have to be big ones, and a different level of valuation thinking is needed for those.

Mike

By: Rob

Rob — Tue, 27 Mar 2007 21:12:37 +0000

Interesting points, and all very good. I was just pointing out that he no longer fits the mold “value investor” (by what I perceive to be the orthodox view of value investing) but people still seem him that way. I think you are all on the right track, that Buffett is just a value investor in a different sense of the word. He’s still finding things that are undervalued, but not undervalued by the old standard of book value.

By: R. Stavros Bezas

R. Stavros Bezas — Tue, 27 Mar 2007 19:55:18 +0000

I believe the devil is in the details here. He says that he is paying a premium to net worth, but not to net present value. I believe that he is merely stating that they are purchasing companies for more than that are worth more on the books today. They can very well still be considered a value in the long-term.

By: Mike

Mike — Tue, 27 Mar 2007 17:51:18 +0000

Rob,

I think Warren addressed this question in a couple places in his letter. While he likes the Graham-esque style of value investing, the number of opportunities to do it in companies big enough to warrant his attention aren’t plentiful. The other thing that seems to be a focus for him now is on stellar management. All things being equal, the stellar managers deliver stellar results.

Mike

By: Wally Bock

Wally Bock — Tue, 27 Mar 2007 17:36:13 +0000

I wonder if this couldn’t easily turn into a game of “pin the title on the investment strategy.” I’ve always thought that Buffett was sui generis–one of a kind. He’s less an investor like I am with my portfolio than he is a manager like I am with my own business. All the homey homage to Ben Graham is nice, but Buffett has made his money in a way that is different from most of the other investors I’ve studied. Anybody offer up an example of someone similar?

By: Adam

Adam — Tue, 27 Mar 2007 16:41:21 +0000

I see where you are going, but fundamentally I believe he is a value investor. The new breed of this discipline, ultimately led by Buffet, are beginning to understand the need to evaluate human relationships and intangibles in the overall valuation of a business. There is a visible shift in the value investing world towards understanding, and integrating, qualitative factors into the investment decision.

By: TwoMaids

TwoMaids — Tue, 27 Mar 2007 15:54:55 +0000

Buffett has explained his transformation in the past. The simple explanation is that he dealt with much smaller amounts of capital in the early years. This forced him to begin purchasing more private enterprises than public companies. And private enterprises almost always carry a premium (as long as they are making money).

In addition, Buffett has attributed his investing acumen to two people. Ben Graham is the most recognized, but Philip Fisher was just as much as responsible for Buffett’s head.

On top of everything else, Buffett is a valuation genius. There’s a story of him riding down a road with a friend in a city. Buffet started rattling off numbers of each company that he passed – some public, but most private. What we think is a premium may be a discount in his thinking. And the reverse can be true as well.