In this year's Berkshire meet, Buffett formulates a fun new definition of value investing
11-May-2023 •Dhirendra Kumar
"The world-changing doesn't give you opportunities. What gives you opportunities is other people doing dumb things."
In all the years I have watched the annual Buffett and Munger show from Omaha, USA, this is one of the funniest yet truest things I have heard either of the two old men say. Leave all the theory of value investing aside, Buffett is saying. All you need is other people doing dumb things; that is one thing that the world of investing will never run out of.
The Buffett and Munger show is the Q&A session of the world's most famous investors' event, the annual shareholders' meet (AGM in Indian terminology) of Berkshire Hathaway. The two old men, one 92 and the other 99, are legendary investors with decades of wisdom and experience in business and investing. The Q&A is an unscripted, candid, insightful, and often humorous discussion on investing, business, and life in general.
The 'dumb things' response was to a question from an audience member about how AI and other 'disruptive' technologies will impact the future of value investing and what would the advice for investors be. Interestingly, the answer had Buffett and Munger disagreeing. As soon as the question was done, Munger hurriedly said, "I'm glad to take that one," and then said that value investors would have a harder time now because there were so many of them competing for the same opportunities and that they should get used to making less.
Then, Buffett took over and quipped, "Charlie has been telling me the same thing the whole time we've known each other," upon which Charlie interjected, "But we are making less!" Buffett then went on to explain. He said that the world had had so many new things since he started investing in 1942, but none of those things changed anything, nor does tech. "New things coming along don't take away the opportunities. What gives you opportunities is other people doing dumb things. I would say that in the 58 years that we have been running Berkshire, there has been a great increase in the number of people doing dumb things, and they now do big dumb things..."
It's a hell of a statement and creates a new comical definition of value investing as something that depends on other investors doing dumb things. Even though this definition sounds like a joke, I would argue that it's absolutely correct. Consider this simple fact: all investing is value investing, and the success of a value investor depends on other people making the mistake of not understanding what a stock is worth. In a casual statement, this mistake can be called a dumb thing to do, even though that sounds slightly arrogant.
But then, if you want mundane things said in dull corporatese PR-speak language, that's available at every other shareholders' meet in the world. The Berkshire meeting is meant to be about the world's most distinctive company and two salty old men who have nothing left to prove to the world and are absolutely unafraid to speak their minds about any and everything.
For anyone even vaguely interested in business or investing, watching this Q&A is educational and entertaining. The primary goal of observing Berkshire should not be to identify the exact company or industry that the duo from Omaha are keen on. After all, most of us need not manage a half-trillion-dollar purse, rendering specific insights from Buffett and Munger inapplicable. Rather, the unchanging principles they have adhered to for six decades are what truly matter. Some of these tenets include: firstly, adopting a long-term perspective, as resilient businesses can weather temporary setbacks; secondly, embracing stock market volatility and leveraging it to your benefit; thirdly, investing exclusively in business you understand; and finally, emphasising the importance of the individuals leading a business, as trust and ethical conduct are paramount to effective processes.
Given the age of the two, the curtain will come down on this show sooner rather than later, but these annual meets have achieved legendary status as no other event of this kind can ever aspire to.