Warren Buffett (Date of Birth August 30, 1930, Omaha, Nebraska, U.S.) turns 93 later this year. After Benjamin Graham, it is his student Buffett who is, undoubtedly, the embodiment of value investment. The greatest investor of all time, Warren Buffett, was Graham’s student at Columbia Business School. Benjamin Graham, known as the Father of Value Investing has written several books including the famous, ‘The Intelligent Investor’ that offers foundational concepts for value investors.
Buffett was a deep, concentrated value investor in the beginning of his career. His strategy has changed over the years to focus on purchasing high-calibre businesses and attempting to do it at a discount, but valuation is still a crucial step in his stock-picking process.
Value investors search for stocks that are undervalued in the hope of making money once the market values the stock “correctly.” For instance, if a stock is trading at $100 and a shareholder feels it has an intrinsic worth of $150, the investor would buy the stock and aim to profit from it.
At the time of the stock market crash or even during big corrections across the board, stock prices fall and sentiments turn bearish. In such market dips, many companies find their stocks overcorrected and start trading below their intrinsic value.
That is the time value investors start accumulating them to sell them at higher valuations when markets rebound.
Buffett began investing in deep value but subsequently switched to quality. Buffett famously remarked of the evolution of his investing strategy – It’s far better to acquire a fabulous firm at a fair price than a fair company at a wonderful price.
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Despite this, Buffett has had difficulty locating US companies for Berkshire Hathaway Inc.’s $130 billion cash hoard that are reasonably priced, despite the US stock market’s strong valuation for many years. Warren Buffett’s approach towards value buying is not restricted to the US. During his visit to Japan recently, Buffett promoted his holdings in five Japanese trading firms and urged them to collaborate with Berkshire on new projects.
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This is hardly Buffett’s first international venture. Buffett has made investments in a number of companies over the past 20 years, including the Chinese oil business PetroChina, the Korean steelmaker Posco, the UK’s Tesco, the French pharmaceutical company Sanofi-Aventis, and the European insurers Munich Re and Swiss Re. He also hinted to Nikkei that he was considering making other investments in Japanese firms, suggesting that he might not be done in Japan.