As an investor, I think one of the easiest things you can do to try and improve your performance is to learn from proven performers. That is why I pay attention to Warren Buffett.
Buffett is known for his superb long-term track record. His company Berkshire Hathaway (NYSE: BRK.A) (NYSE:BRK.B) has seen its per-share book value increase dramatically in the decades the great man has been at the helm.
How to think about value
Like many investors, Buffett started out by buying shares that he thought looked very cheap compared to the company’s value.
But in some cases, these were businesses that previously had illustrious pasts but were already on their way out, due to factors such as changing customer tastes.
In fact, Berkshire is just such a company. It was a textile manufacturer that had once done very well. But by the time Buffett bought it, the economics of textile manufacturing in the US were less attractive than they had been.
So Buffett shifted focus. He started looking for shares that seemed to offer good value (even if they were not obviously “cheap“) based on the long-term prospects for a company.
Looking for great returns
As an example, consider Berkshire’s biggest shareholding: Apple. When Buffett started investing in Apple it was already wildly successful and the shares were not obviously cheap.
But he still felt it offered him value. He reckoned its share price did not properly reflect its strong prospects. Since buying, the Apple stake has, of course, soared in value. Yet again, Buffett was right.
Going for great
But he is the first to admit that he is not always right. He has made mistakes.
That helps explain why Berkshire does not put all its funds into a single investment idea, but rather diversifies. Rather than invest in loads of good companies though, he aims to buy into a few great companies.
A Buffett-style share I own
An example of what I see as a bargain share based on the his approach is ITV (LSE: ITV), which I hold in my portfolio.
The company operates in a market that is set to keep on growing, namely targeting people who want to be entertained or informed. But that market has shifted dramatically in recent years as eyeballs have shifted from traditional analogue channels to a multitude of digital rivals.
That has been – and remains – a risk to both turnover and profits at ITV. But the company has been working hard over the past several years to grow its digital revenues. They grew 11% year-on-year in the most recent quarter.
With both a broadcasting and a production business, ITV has unique assets including the rights to popular show formats. The first quarter saw revenues in the production business decline as demand for studio space and related services was lower than last year. That trend could continue in coming quarters.
But like Buffett, I take the long view when it comes to investing. ITV with its 6.5% dividend yield strikes me as a bargain share at its current valuation.
