The billionaire investor Warren Buffett is due to hand over the day-to-day executive reins of his company Berkshire Hathaway at the end of the year.
Buffett’s track record of value creation at Berkshire has been remarkable.
Looking at it, it is easy to think that Buffett benefited from investing in times when there were much greater potential rewards available than today.
But is that true?
Information asymmetries have reduced
In Buffett’s early career, he was able to make some very easy money trading obscure shares in some cases because most people did not know the real value of what they had on their balance sheet.
That is theoretically possible today, but in developed markets like the UK or US it is far less likely than it once was.
The explosion of free information, instantly available, has ended some of those former lucrative opportunities.
Looked at another way, though, I see that as an opportunity for small investors!
Up-to-date share price information and access to thousands of company accounts instantly was once largely the preserve of big financial firms – and they had to pay prettily for the privilege. Now someone using their phone on the train can access much of the same information as a financial professional, for free.
Making sense of large amounts of data
Still, having the raw information is only one part of the equation. Where Warren Buffett has excelled is in understanding how to spot an opportunity by interpreting such information.
That remains as powerful a skill as ever. As companies like Nvidia and Tesla have demonstrated over the past decade, today’s stock market continues to offer up the sort of brilliant investing opportunities that Warren Buffett started seizing profitably decades ago.
The advantage of having little money to invest
The long wait for this week’s announcement of a new acquisition by Berkshire demonstrates a challenge Warren Buffett has. With Berkshire’s huge cash pile, it takes sizeable deals to move the needle.
Indeed, he has often lamented that he thinks he could achieve much better returns if he was once again investing with the far more modest sums of his early days in the stock market. That is music to the ears of a small private investor like myself with only a small amount to invest.
Applying Buffett’s approach
I continue to apply some Warren Buffett principles in putting that money to work.
For example, I recently purchased shares in Lululemon Athletica (NASDAQ: LULU). Buffett is always optimistic about the long-term prospects of the American economy, but that is exactly the market where the yogawear maker has been struggling. There is a risk that could continue to act as a drag on sales, as consumers tighten their belts.
But Buffett loves a strong brand – and Lululemon is just that. It has a large customer base, pricing power, and a unique positioning in its market.
I think management recognises how it can get North American sales back on track. Meanwhile, international expansion continues to offer sizeable opportunities for the long term.
At its current price, I see Lululemon as a great company selling at an attractive price – which is why I’ve been buying!
