Why Value Investors Are Different - Barron's



The most dramatic and valuable lesson from the fabulous (and still counting) 50-plus-year investment career of Warren Buffett is the legendary account of his steadfast conviction amidst the 1973-75 bear market. He had correctly identified by 1973 that the shares of companies such as the Washington Post were selling for but a fraction of the underlying business value represented by those shares. He observed that numerous buyers would readily pay several times the prevailing market price of Washington Post stock to acquire the entire company, but it was controlled by the founding family and not for sale. Buffett could acquire a minority interest in the business at a bargain price, but he could not force the valuation gap to close. For that, he was dependent on the passage of time to result in improved market conditions and/or on the behavior of management to successfully run the business and to act in the best interest of shareholders.

Fortunately for Buffett, the shares of Washington Post and other attractively priced companies failed to rise from 1973 bargain levels and in fact proceeded to relentlessly decline over the next two years, enhancing the opportunity by orders of magnitude. Roger Lowenstein, in his biography Buffett, describes the "impression of Buffett sweeping down the aisles of a giant store [buying stock]... . As the market fell, he raced down the aisles all the faster."

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