The Value Investing Resurgence: Warren Buffett’s Strategy Proves Its Worth Again

Every time the larger market experiences one of its convulsions, the Berkshire Hathaway faithful experience a certain kind of satisfaction that is quiet and almost smug. When shareholders fly in from Tokyo or São Paulo to attend the annual meetings in Omaha, you can see it in their faces as they sit in the arena with their See’s Candies boxes and their enduring memories. They have previously heard the praise for value investing. They have witnessed the celebration of the growth crowd, followed by the arrival of the correction. And the traditional values have consistently refused to perish.

If you have been paying attention, you won’t be surprised by the current trend of renewed interest in cheap, fundamentally sound companies following years of rate increases and volatility in technology stocks. The pendulum never stops swinging. In a 1974 Forbes interview, Buffett nearly verbatim stated as much when he likened the post-crash buying environment to an oversexed man in a harem. For the unguarded quote, the man has a gift. In ways that take years to fully understand, he also possesses a gift for being correct.

Fundamentally, value investing is simple. It was founded on one timeless principle by Benjamin Graham, who taught Buffett at Columbia and was essentially the intellectual father of the field: the market misprices things, and if you are patient enough to wait for those mispricings, you can profit. Over the course of six decades, Buffett refined that lesson, adding his own focus on competitive moats, management quality, and what he refers to as the “circle of competence”—an honest self-evaluation of what you truly understand well enough to assess. Perhaps the most underappreciated aspect of Buffett’s brilliance is not what he purchases, but rather what he declines to purchase. He famously declined to invest in Google and Amazon, publicly admitting that he lacked sufficient faith in the internet business model to value those companies appropriately. It’s more difficult to maintain that kind of discipline than it seems, particularly when the stocks you avoided are yielding triple-digit returns and everyone you know is becoming wealthy.

Even though it wasn’t totally disastrous financially, value investors suffered psychologically during the roughly 2010–2021 decade. Buffett’s strategy looked like something your grandfather kept in a drawer with old savings bonds when growth stocks, especially those in the technology sector, posted returns. There were numerous articles written by credentialed, serious analysts who claimed that value investing was structurally outdated and that network effects and intangible assets had completely destroyed the previous metrics. The criticism reached a fever pitch when the pandemic struck in early 2020 and Buffett chose to sit on his massive cash pile rather than use it aggressively during the crash. Here was the Oracle of Omaha, seemingly motionless, observing younger managers acquire dilapidated assets without taking any action. For a moment, it appeared to be hesitation.

There was no hesitation. It was condemnation. Buffett has consistently stated that the first rule of investing is to never lose money, and the second is to never forget the first. The pandemic’s course was truly unknown in March 2020, and the true harm to corporate profits had not yet become apparent. Berkshire invested more than $51 billion in new positions, including a significant move into energy stocks, by 2022, when the market had become clearer and stocks had dropped significantly from their peaks. In hindsight, the timing seemed more like someone who had been closely observing and then took decisive action when the prices made sense than a slow old man finally waking up.

It seems like the larger investment community is just now catching up to what Buffett has been doing all along. The discount rates that reduce the value of future earnings have reappeared because interest rates have been higher than many analysts anticipated. The reasoning behind purchasing unprofitable growth companies at huge multiples was subtly undermined by that mathematical reality. Free cash flow, return on equity, and sustainable profit margins are now more than just accounting line items; they are the entire game once more. The dull metrics are making a comeback, and the businesses that have consistently produced actual profits appear far more intriguing than they did a few years ago.

Buffett’s approach, which he has detailed in shareholder letters dating back to the 1960s, entails evaluating businesses based on a number of factors that the majority of casual investors never consider. Instead of focusing on a single outstanding quarter, he wants a steady return on equity over a period of five to ten years. He prefers minimal debt, ideally with shareholder equity driving earnings growth instead of borrowed funds. He searches for profit margins that are growing or at the very least steady over time, as this gives him a true indication of the caliber of the management. Additionally, he seeks a long-lasting competitive advantage that makes the company genuinely hard to imitate. He refers to it as a moat. He has stated that a castle is better protected by a wider moat.

When you read through decades’ worth of Buffett’s correspondence and interviews, you’ll notice how consistent his philosophy has been. A younger Buffett explains the “no called strikes” analogy in a 1985 PBS interview that has recently gone viral. Investing is different from baseball in that you can watch thousands of pitches without swinging and still not be penalized. Only when the pitch is truly in your zone do you need to move. He is essentially saying the same thing at Berkshire’s annual meetings thirty years later, but with a few more decades of evidence to support it. It has an almost stubborn quality, but in the best way possible. The man did not become sidetracked after discovering something that worked.

It’s still unclear if the current surge in interest in value stocks will continue or if capital will eventually return to riskier ventures due to another wave of speculative enthusiasm. Until they don’t, markets have memory. However, it’s difficult to ignore the fact that the fundamentals crowd is currently experiencing a sense of vindication when looking at the data from the previous few years: energy stocks outperforming, well-known consumer brands holding up, and speculative technology companies struggling to justify their valuations. Value investors reacted to Buffett’s announcement that he would be stepping back from day-to-day operations with a mixture of reverence and silent alarm. The method will outlive any individual practitioner. That much seems obvious.

The true lesson is simple and is lost each time a new asset class promises frictionless returns. Companies aren’t abstract concepts. They produce goods, sell goods, pay wages, take on debt, and either make or fail to make actual money. Prices frequently deviate from that reality, sometimes for years at a time. However, as Buffett has shown throughout his life, the market eventually ceases to vote and begins to weigh. And when it does, patience often resembles wisdom.