Is Warren Buffett Still a Value Investor? Guru Portfolio Review
I have once again reviewed Warren Buffett’s portfolio, and now wonder if Mr. Buffett has turned away from value investing, or if he has just developed away from Benjamin Graham’s methods and created his own. What do you think? Leave a comment below and let’s discuss it.
But let’s first review his portfolio again, according to the ModernGraham approach. I visited stockpickr.com and picked out 15 companies that are among his holdings. Out of the 15, 7 would be suitable for Benjamin Graham’s defensive investor, 1 would be suitable for the enterprising investor, and 7 would be considered speculative. On top of that, only 6 are undervalued (according to our valuation method), 3 are fairly valued, and 6 are overvalued.
I understand that Mr. Buffett has often said that he would rather own a “wonderful company at a fair price than a fair company at a wonderful price.” But it seems to me that some of these companies are more like “fair companies at a fair price.”
It would appear that he has moved away from Benjamin Graham’s teachings from The Intelligent Investor over the years. What do you think?
Here are links to valuations of the 15 companies I looked at.
- AXP – American Express Company – Overvalued & Defensive
- BNI – Burlington Northern Santa Fe Corp – Undervalued & Defensive
- CMCSA – Comcast Corp – Undervalued & Speculative
- COP – Conoco Phillips – Overvalued & Speculative
- IR – Ingersoll-Rand Company – Overvalued & Speculative
- JNJ – Johnson & Johnson - Undervalued & Enterprising
- KFT – Kraft Foods Inc – Overvalued & Speculative
- KO – Coca-Cola Company – Fairly Valued & Speculative
- LOW – Lowe’s Companies – Fairly Valued & Defensive
- NKE – Nike Inc – Fairly Valued & Defensive
- PG – Proctor & Gamble – Undervalued & Defensive
- UNP – Union Pacific Corp – Undervalued & Defensive
- USB – U.S. Bancorp – Overvalued & Speculative
- WFC – Wells Fargo & Co – Overvalued & Speculative
- WMT – Walmart Stores Inc – Undervalued & Defensive
Photo provided by Wikipedia Commons.
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Long time no chat. I love this article. I think that the valuations of some of these companies have changed quite a lot since when he first bought them. How do they look when they were first added to Berkshire may or may not add to the story. His philosophy is also to hold onto good companies for a long time. In some of his talks he says he looks also at growth potential as well as looking for a good price, saying a pure Graham play is much like a cigar butt method to investing. You get one more puff out of it because it’s cheap, and then it goes up again, and then you throw it away. He likes the longer term, hating to sell if he can avoid it. He has stated he was also influenced by the works of Adam Smith(not the 1770’s economist but 1970’s investor who wrote Supermoney) He also has leaned a little bit on Phil Fisher who wrote Common stocks and Uncommon Profits).
Hope you are doing well.
Aaron
I agree with AaronH. These stocks were a different story when he first bought them and it is known that Mr. Buffett prefers to hold onto a company forever, unless he no longer believes that some of the fundamentals of his investment philosophy (like the company’s moat or management) are no longer intact.
Indeed, Buffett has said that Fisher (not just his book, but especially meeting him and discussing investing) has changed his own investment philosophy. Furthermore, lets not forget about Charlie Munger. Some say that he was the one who really convinced Buffett not to only look at its valuation from a Graham perspective, but also to look at its potential growth and factors like management etc.
Personally, I think Mr. Buffett evaluates companies first from a Fisher/Munger perspective. Once he thinks the company has enough potential, a strong moat and management etc. he applies Grahams teachings to determine is value and will wait to buy these companies with a margin of safety.
Jeroen
Amsterdam
[...] Is Warren Buffett really a value investor? [...]
I think that it is inevitable that Warren Buffett has moved on and developed his own strategy.
He has himself stated that he uses a mix of both value and growth elements to evaluate investment candidates. Warren Buffett also states often that one should not copy others but arrive to your own conclusions.The take over of Wachovia by Wells Fargo is clearly seen by most people as a speculative and risky move.The purchase of Gillete by PG some years ago was seen as an expensive deal by most and his recent increased stake in JNJ came at a time Wall street analyst are pesimistic about drug companies and call JNJ even overvalued.
The principals of Graham are still valid but the formulas in terms of arithmetic must be adapted to todays circumstances and the quality of the company and its future competitive position can only be determined by the business insight of the investor himself. It requires a rare skill and cannot be determined with any accuracy using past performance figures and formula’s. Benjamin Graham has stated this himself when he described his enterprising investment methods.
JPV from Switzerland.
[...] Is Warren Buffett really a value investor? [...]
[...] I’ve been a little critical of Buffett lately (see my take on his portfolio in the post Is Warren Buffett Still a Value Investor?) but I’ll be the first to admit that he got a great deal [...]
[...] I’ve been a little critical of Buffett lately (see my take on his portfolio in the post Is Warren Buffett Still a Value Investor?) but I’ll be the first to admit that he got a great deal [...]