No. Warren Buffett could not guarantee a 50% annual return on investment today. And certainly not by sticking exclusively with value stocks.
Personally, I like the concept of buying value--of buying undervalued stocks. The problem is: The ones that are undervalued often tend to stay undervalued. Yes, there are exceptions and if you find a company earning $26 a share selling for $3, buy it!
The problem is that there's both more and less transparency in the markets today. More transparency: More reporting requirements. More information available online. Instant online pricing and trading. All those work against finding hugely undervalued stocks. And if you take a look at a lot of stocks today, you'll find even the "experts" divided on whether it's a buy or sell.
Example: I just did a search (on Fidelity) using the "Deep Value" screen from Zack's Investment Research. The highest ranking stock was Valero Energy. Second highest ranking was Nabors Industries. I'm not sure I'd touch any energy stocks (both are energy-connected) right now. While analysts rate Valero a strong buy, Nabors is rated neutral. One analyst expects Nabors to underperform. Six are neutral. And two rank it as a buy. And that's the pattern all down the value list. A lot of stocks--and these are among them--are considered values because they've fallen greatly in price. But maybe they should have.
I said earlier that investing is more difficult now because of both greater and lesser transparency. I think it's become apparent that a lot of what goes on with stocks is questionable manipulation at best. The average consumer really doesn't have a chance against the inside traders and those who walk a fine line--staying legal, but just barely.
And I don't know if mutual funds are part of the problem or just irrelevant. You'd think that well-managed mutual funds would outperform the stock market in general. After all, a monkey throwing darts at NYSE-traded stocks should do as well as the averages. The mutual fund managers should do better. And yet...Let's take a "good" value fund: Fidelity's Value Fund (FDVLX). See below for its performance plotted against some major stock indices. It's substantially underperformed.
Like I say, I really like the idea of value stocks. But it turns out they're usually underpriced (a value) for a reason. And that reason--whether poor management or some poor strategic decisions--has to be fixed for the stock to move above the value range. And now that means there are very few undiscovered gems. What you're more likely to discover are some nice lumps of coal that, with enough pressure, might turn into diamonds.
Hope that's clear enough.
Warren studies the stocks he purchases like no one else to begin with. Look at teh economy and market in general when he made the majority of his large stock positions and you will see that the economy was very weak and stocks were in serious bear markets. A lot of the stocks people refer to in the portfolio were purchased in mid to late 60's and 70's when the American economy was a wreck and there were indeed more buying opportunities for value investing than what may appear today. That does not mean that there are no opportunities in today's market if you knwo what you are looking for and have an idea where to look. Today Buffett buys less equities but still does major purchases on pullbacks and when the market corrects. Instead he focuses on buying entire companies and not just their stock. When he sees a public company that meets his definition of a value play he simply buys the entire company. He also purchases preferred stocks that act more as a bond with a fixed dividend that is guaranteed as he did in Goldman and BOA. He can convert these shares into regular shares at a predetermined price and in the case of BOA that is $7 something a share and the price is good for about 20 years. Meaning if he were to convert the preferred options today he would have a basic 100% immediate return on his investment as the last I saw the stock was trading in the $13 or $14 range. If you want to really understand his investing methods I strongly recommend his biography call Snowball Effect. It is a GREAT read. Also buy a share and go to the shareholders meeting as that is a true experience and one everyone who invests should experience themselves.
Ive asked this question before but didnt get a clear response. Im curious, ive been reading warren buffett's bio it seems that before he met charlie munger and during his days working for ben graham it seems like the stocks were way undervalued. I mean not just a little undervalued but stupidly undervalued. For example
"As much as he liked GEICO, he had made the wrenching decision to sell it after finding another stock that he coveted even more, called western insurance. This company was earning $26 a share, and its stock was selling for as little as three buck".
Crazy right? theres plenty during that time.
His annual returns in those days were like a whopping 50%+ easily and he even beat market when it was down.
another interview in 1999 warren is sure he could make 50% or more!
"I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”
Does any think so?The companies before were selling way way below book value not just in the range of like 0.8-1. literally selling for nothing. I understand inflation but even then they sell for too low.
What is ur opinion on this and if your a value investor what do you t hink? value investing seems to be alot different back in tose days than these. ALL in all u are looking for value but those days are literally over when you can find a share selling at like $29 and with a book value of $100. what would buffett do differently? his investing strategy is whole lot different to his time in his partnerships
