Too Little Too Late for Discarding The Concept of “Value Investing?”

With a surprise ending, Warren Buffett set the record straight a long time ago but the myth lives on

In our previous post, we introduced the concept of alternate finance. Motivated by one of our favorite scenes from Back To The Future, we argued that the concept of “value investing” may not have been born in the halls of academia or on Wall Street, but rather in a book publisher’s meeting. We said:

We can’t help but draw some parallels. Slightly paraphrasing Doc Brown, it seems that what we are currently experiencing in finance is an alternate reality for Warren Buffett, us, and perhaps a few others, but reality for everyone else. We genuinely believe that we inhabit a world of alternate finance.

Upon consideration of this sentence for a few seconds, you might feel puzzled. Isn’t Warren Buffett the greatest “value investor” of all time? Does he not believe in “value investing”? Wasn’t Buffett the one who used the phrase “value investing” three times in this article, which later became an appendix in The Intelligent Investor? If all the above are correct, then why would today’s finance be an alternate reality for him? Wouldn’t it be more accurate to characterize him as the creator of it?

These are all valid questions. As is generally the case, uncovering the truth requires several steps: 

i) Straight from the horse’s mouth: We should ignore what others (the media, etc.) tell us about Buffett, regardless of how widespread it is. We should only consider what Buffett himself has said.

ii) Assume nothing: We understand it may be hard for some to let go of the concept of “value investing.” They’ve heard it probably thousands of times. Could everyone be wrong? As difficult as it is to admit, myths can persist due to complicated incentive structures that feed on themselves. 

Ask yourself this: If Ben Graham, the “Father of Value Investing,” never actually uttered the phrase in The Intelligent Investor, and if Warren Buffett, Graham’s most famous and arguably most successful disciple, doesn’t believe in the concept, does it make sense to hold on to preconceived notions? 

We don’t think so. If we must discard what we believed to be true based on verifiable, irrefutable data, so be it. It’s better to correct a mistake rather than doubling down. In this post, we shared with you a secret: we informed you that Ben Graham did not use the phrase “value investing,” not even once, in The Intelligent Investor. In our previous post, we explained how the concept may have emerged in a publisher’s meeting regarding the 1986 edition of The Intelligent Investor, the first edition released after Ben Graham’s passing, and we hypothesized that this might have possibly happened due to Warren Buffett using the phrase in one of the appendices. In this post, we’ll come full circle and close the loop by analyzing the positions Buffett took afterward regarding “value investing.”