Has Value Changed or Has Buffett Changed?

I’m re-reading Margin of Safety by Seth Klarman and ran across this paragraphHas Value Changed or Has Buffett Changed? on page 88:

Value investors will not invest in businesses they cannot readily understand or ones they find excessively risky. Hence few value investors will own shares of technology companies. Many also shun commercial banks, which they consider to have unanalyzable assets, as well as property and casualty insurance companies, which have both unanalyzable assets and liabilities.


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Qualivian Investment PartnersQualivian Investment Partners commentary for the second quarter ended July 30, 2020. Q2 2020 hedge fund letters, conferences and more “Short-term investors will accept a 20% gain because they didn’t spend the time to develop the conviction and foresight to see the next 500%.” - Ian Cassell Executive Summary Readers of investment letters fall into Read More

In 2011, Buffett made a $10 billion investment in a technology company (IBM) and a $5 billion investment in a commercial bank (Bank of America). In addition, he has been in the property and casualty insurance business ever since he bought National Indemnity in 1967.

This made me wonder if the definition of value has changed or if Buffett has changed. Is Buffett a growth investor now? I don’t think so. I think the growth companies like IBM have now matured to the point where they can be value companies. Take railroads as an example. 100+ years ago they were the darlings of Wall Street and were growing like crazy. They were going to power the economy into the 20th century. Today they are slow growth businesses with predictable cash flows and almost zero expansion opportunities. When Margin of Safety was written in the 1990?s technology companies were the railroad companies of the 1800?s. They were going to power the economy into the 21st century. As one country song says, “welcome to the future.” Technology is very much part of our economy and will be for a long time.

Value is in the eye of the beholder and today’s growth stock could be tomorrow’s value stock.