There’s arguably no investor more famous than Warren Buffett. The so-called Oracle of Omaha is worth north of $100 billion, more than the market cap of Ford, Kroger and many other big companies. Buffett is most famous for his “value investing” approach, but in recent years, some have wondered if he was perhaps falling behind the times. Still, Buffett continues to beat markets.
So what does value investing mean? Buffett looks for businesses that seem valued below their intrinsic value. This might seem like common sense. After all, isn’t the point of investing to buy low and sell high? Yet in large, liquid markets with lots of investors, it’s hard to find a good deal. Why? Because tons of professionals are busy evaluating companies, all looking for good deals.
Often, value is measured with price-to-earnings ratios and other metrics. Buffett’s strategy is to dig deeper, looking at a company’s so-called “fundamentals,” including not just measurements like revenues, but also assets such as factories, low debt levels and various other factors.
Buffett typically avoids investments in emerging tech companies, which often offer high rewards, but also high risks. Rather than acting as a soothsayer trying to predict major future developments, Buffett hunts for businesses that appear a bit undervalued right now. He also looks for firms that could enjoy steady, predictable growth in proven markets and sectors.
With many investors preferring hot tech stocks and the like, Buffett’s investment strategy sometimes appears outdated. And yet, Buffett’s conglomerate, Berkshire Hathaway, has enjoyed burgeoning stock prices in recent weeks, often beating the market. Berkshire Hathaway’s market cap has topped $700 billion, making it one of the largest companies in the world.