At Berkshire Hathaway's (BRK.A -0.56%) (BRK.B 0.07%) recent annual meeting in Omaha, a shareholder asked CEO Warren Buffett and Vice Chairman Charlie Munger how they see value investing in an era of disruptive technologies like artificial intelligence, and how investors can be successful with the world changing so rapidly. Both of the legendary investors had quite a bit to say about the matter.
Munger had a somewhat pessimistic tone about the future of value investors. Buffett, however, doesn't see any shortage in opportunities, and for one big reason.
Image source: The Motley Fool.
Charlie Munger thinks it's not a great time to be looking for value
Munger's commentary on the future of value investing centered around the fact that there are so many more investors in the market today than in previous generations. He said:
I think value investors are going to have a harder time now that there's so many of them competing for a diminished bunch of opportunities. So, my advice to value investors is to get used to making less. There is so much money now in the hands of so many smart people all trying to outsmart one another and outpromote one another, getting more money out of other people. And it's a radically different world from the world we started in.
Warren Buffett's secret to finding value investing opportunities
Buffett responded with a more optimistic tone, saying that there will likely be plenty of opportunities in the years ahead. His reasoning? The primary way that value investing opportunities are created has increased. As Buffett says, "What gives you opportunities is other people doing dumb things."
Buffett said that in the nearly six decades since he and Munger have been running Berkshire, the number of people doing dumb things has increased dramatically due to the ease with which investors can raise capital.
He specifically pointed to the wave of insurance start-ups we've seen over the last decade or so, pointing out that the insiders got rich regardless of the success of the business. "Whether the business succeeds or not, the underwriters got paid and the lawyers got paid," said Buffett. He went on to say that founders wouldn't have been able to raise the money for poor business models like this decades ago.
Buffett also said that "the world is overwhelmingly short-term-focused," mentioning how management teams are increasingly focused on short-term earnings projections. "I mean, that is a world that's made-to-order for anybody just trying to think about what you do that should work over five or 10 or 20 years."
How can you spot people doing dumb things?
Of course, if it were easy to spot opportunities created by other people making the wrong moves, we'd all be rich.
However, this principle is an extension of one of Buffett's all-time most popular investing philosophies -- to be greedy when others are fearful and fearful when others are greedy. For example, it could be a "dumb thing" for investors to abandon stocks because there's a bear market going on and there are short-term volatility concerns. Smart investors with a long-term focus can take advantage of panic selling to find opportunities.
This is just one simplified example. The point is that by recognizing when other people are applying short-term thinking on a large scale, it could create opportunities for investors to put money to work if they don't care what their stocks do over the next few weeks or months.
