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Buffett Explains Value Investing: ‘What Gives You Opportunities Is Other People Doing Dumb Things'

David A. Grogan | CNBC
  • "What gives you opportunities is other people doing dumb things," the "Oracle of Omaha" said at Berkshire Hathaway's annual shareholder's meeting.
  • Value investing typically refers to buying underappreciated stocks or businesses when others are selling them at a discount.

Follow our live coverage of Warren Buffett at Berkshire Hathaway meeting.

Warren Buffett on Saturday boiled down value investing, the strategy that has helped him amass his wealth, in one sentence.

"What gives you opportunities is other people doing dumb things," the "Oracle of Omaha" said at Berkshire Hathaway's annual shareholder's meeting.

Value investing typically refers to buying underappreciated stocks or businesses when others are selling them at a discount and then holding them for the long term. This approach has led to some of Buffett's biggest investment — especially when others were panicking.

During the 2008 financial crisis, the legendary investor bought Bank of America, which is still one of his biggest holdings. He also acquired shares of Goldman Sachs, but has since sold his stake in the banking giant.

Buying when others were selling in fear has in part helped Berkshire return a whopping 3,787,464% from 1965 through the end of last year. That's way more than the S&P 500's 24,708% return in that time.

And while Buffett acknowledges that the world is changing, he thinks value investing opportunities abound.

"In the 58 years we've been running Berkshire, I would say there's been a great increase in the number people doing dumb things, and they do big dumb things," he said. "The reason they do it is because, to some extent, they can get money from people so much easier than when we started."

"I would love to be born today, go out with not-too-much money and hopefully turn it into a lot of money," Buffett said.

Charlie Munger, Berkshire Hathaway vice-chairman and Buffett's long-time right-hand man, has a more pessimistic view on value investing.

"I think value investors are going to have a harder time now that there're so many of them competing for a diminished bunch of opportunities," Munger said. "My advice to value investors is to get used to making less" money.

Despite Munger's more downbeat outlook for value investing, Buffett thinks opportunities will present themselves to value investors given the short-term view of so many people in today's society.

Follow CNBC's livestream of Berkshire Hathaway's 2023 annual meeting here.

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