Value Investors Tribe

In the 1999 Berkshire Hathaway annual meeting, a question was raised to Warren Buffett and Charlie Munger on how they think about the market currently. It is important to note that this was the time of dotcom bubble and the so called “internet companies” were being richly valued.

Warren Buffett very interestingly said, “We don’t look at the market, we look at the businesses.” He then goes on to explain that Charlie and he himself does not think of stocks as a little items that show up on paper or news and that has charts associated to it. They think of stocks as parts of businesses. He further elaborates that at this time they are not able to find the businesses they like and are trading at the price they want. He clarifies that this does not represent anything about stock market and admits that he has no clue how the market will do in one week, one month or one year. It was clear that he was least concerned about the market and totally focused on finding the businesses that meet his criteria.

Warren continues by saying that when they don’t find the businesses, they money piles up. This indicates that they are perfectly comfortable waiting until they find something they are looking for. It is worth nothing that he does not make any compromises to the filters or principles he has for investing in businesses just because the majority does not confirm with his thesis. This indicates how Warren and Charlie differ from majority of the investors.

Warren then points out to a very peculiar thing about investors and their focus on stock market. He says, “I know of no one that has been successful and really made lot of money predicting the actions of market itself. I know a lot of people who have done well picking businesses and buying them at sensible prices.” This indicates how the charts and prices and the movements of the market provide adrenaline rush but are rarely helpful in making money whereas the supposedly boring job of analyzing and finding businesses has been historically well-rewarding.

Key Takeaways:

1. Stocks are nothing but parts of businesses. As simple as the concept is, sticking to it during unusual times makes all the difference.
2. Efforts done in understanding, analyzing and valuing a businesses is way more rewarding then looking at the stock prices and predicting future movements.
3. Sticking to your principles of investment particularly when majority of the crowd is going against you is critical to outperform the market.