This article originally appeared on April 23, 2013 on
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NEW YORK (
) -- Investors should pay far more attention to the teacher than to the teacher's most successful student. Billionaire investor Warren Buffett's investing philosophy has deviated from the original methods taught by Ben Graham, as his enterprise has grown to a size that makes true cigar-butt, asset-based value investing less practical. Much is made of Buffett learning more of a Phil Fischer-like approach from partner Charlie Munger, but the truth is Buffett would have had to develop along that path even if he never met Munger. He had too much money under management for a hardcore value approach to be practical.
That is a problem I do not have, thankfully. I can still focus on the approach learned in the Columbia University classroom that gave birth to what we now know as value investing. Different practitioners of the art have taken it different directions over the decades, but I still prefer the basic buying of assets and, secondarily, earnings at a very low price.
I also heed Graham's advice to benefit from price rather than try to predict market movements. Market movements are important in that they change the relationship between the business value of an enterprise and the current market quotation. It is the price of the individual securities rather than the current level of the averages that matters most.
The collapse of the averages can and does create a plethora of buying opportunities. Periods like 2002 to 2003 and 2009 to 2010 are fun for long-term asset-based investors as bargains are everywhere. Stocks and bonds alike trade for far less than they are worth as an operating business and many sell for a discount to their liquidation value. Periods like the late 1990s, and to a lesser degree the current market, are not as much fun. Bargain issues are difficult to find and one may begin to question the wisdom of avoiding the high-priced, high-valued market darlings. Cash levels in portfolios rise as former cheap stocks become expensive and are sold.