Looking back at the incredible track record of investor Warren Buffett in the early years of his career, it is easy to think he had a great run, partly because of the times he lived in back then.
Buffett has reminisced on some of the opportunities available to individual investors in the 1950s and 1960s that have long since disappeared in an age when vast amounts of information is instantly available to anyone at the click of a button.
But are the glory days gone? Not according to Buffett!
Opportunities in 2023
Last weekend saw the annual shareholders’ meeting of Buffett’s company Berkshire Hathaway.
As usual, the ‘Sage of Omaha’ dispensed plenty of investing wisdom. That included sharing his take on whether an investor starting out in today’s market can hope to find great opportunities.
Buffett said: “What gives you opportunities is other people doing dumb things. In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number of people doing dumb things.”
In other words, Buffett reckons there are potentially more, not less, opportunities in today’s market than there used to be.
Finding investment chances
But wait. How can people “doing dumb things” help me make money? After all, lots of companies do dumb things and lose massive amounts of money in the process, leading their share prices to crater.
I think it is helpful to understand how Buffett thinks about investing in order to put his words into useful context. He is a long-term investor who buys to hold. He looks for great companies whose shares are selling at an attractive price.
Running a great business that makes lots of money is not usually regarded as a dumb thing. It can be the opposite, requiring a high level of skill.
So what dumb things is Buffett saying throw up opportunities?
Value investing
I think his focus is on the second part of his investing model – paying an attractive price.
I interpret Buffett’s words last weekend as meaning that investors sometimes act irrationally, or even stupidly, by selling shares for far below their intrinsic value.
Maybe they just do not understand what that value is. Sometimes, a share price has tumbled as an overreaction to a temporary setback that is unlikely to impact a great company’s prospects over the long term. Indeed, it was one such opportunity that led Buffett to invest in American Express. He still holds those shares 60 years on.
Like Buffett, I am looking out for investors marking down a great company’s shares to what I think is an unjustifiably low level. When I see such an opportunity, I can fill my boots.
Buffett seems to reckon that such opportunities are not a thing of the past but are available now. I just need to find them!
