Value Investing

Value investing is the core discipline of the Berkshire Hathaway investment philosophy, defined as the process of determining the Intrinsic Value of a business and purchasing its ownership at a significant discount to that value.

Origin

The framework is rooted in Benjamin Graham's teachings, specifically the "Margin of Safety" (Chapter 20) and "Mr. Market" (Chapter 8) of The Intelligent Investor. Buffett initially practiced a quantitative "Cigar Butt" version (buying mediocre companies for less than their liquidation value) before evolving the strategy.

Chronological Evolution

• Pre-1970s: [Graham Discipline] -> Buying "Generals" and assets for more than their price.
• 1972: [The See's Shift] -> Under Charlie Munger's influence, the acquisition of See's Candy Shops Incorporated proved that paying up for a "wonderful business" was superior to buying a mediocre one at a bargain.
• 2004: [Fisher Synthesis] -> Reflecting on the death of Phil Fisher, Buffett formalized the synthesis: "The last change—the basic principles are still Ben Graham... they were affected in a significant way by Charlie and Phil Fisher."
• 2004: [Auction vs. Negotiated Markets] -> In the 2004 Meeting, Buffett distinguished between the Stock Market (Auction), where irrational participants create extreme bargains, and IPOs/Private Sales (Negotiated), where informed sellers rarely leave money on the table.
• 2019: [The Amazon Defense] -> In the 2019 Meeting, Buffett clarified that buying Amazon (executed by his lieutenants) is still value investing. He dismantled the false dichotomy between "value" and "growth", re-establishing Aesop's "bird in the hand" formula as the only true definition of value investing.

Primary Source Fidelity

"Investment is most intelligent when it is most businesslike." — Ben Graham (Quoted in 2004 Meeting)

"Scanning a hundred companies that are already trading in the auction market... you’re way more likely to get incredible bargains. The IPO is closer to a negotiated sale. And negotiated transactions are very hard to get bargains." — 2004 Meeting

Connections

• Source: Intelligent Investor, 2004 Meeting, 1972 Letter
• Mental Model: Circle of Competence, Margin of Safety
• Entities: Phil Fisher, See's Candy Shops Incorporated