How Buffett approach shows evolution of value investing

Portfolio managers take stock on fund’s five-year anniversary

How Buffett approach shows evolution of value investing

Warren Buffett’s ability to refine his investment approach has inspired the men behind the Pender Value Fund, which is marking its five-year anniversary.

David Barr, president and portfolio manager, and Felix Narhi, chief investment officer and portfolio manager, reflected on the evolution of value investing and how technology has changed the landscape.

They highlighted how the doyen of investing has maintained his impenetrable reputation and moved on from the Benjamin Graham approach and simple balance-sheet analysis as more tools became available.

Barr said: “Technology has probably had a bigger influence on the opportunity set in investing with Bloomberg and all the screening tools now.

“Fifty years ago someone would have to go to the company and pick up the annual report and look at the balance sheet and it would take a couple of days to work out whether it was trading at a discount to its net book value. You can get that in 10 seconds now.”

Barr added that while in the 1990s, Buffett used to joke that he wanted to own businesses that could be run by a ham sandwich, things have changed.

“Those types of businesses don’t exist anymore,” he said. “Moats are falling apart and businesses require exceptional leaders. When he brought Precision Castparts, he was talking about Mark (Donegan) being CEO; that was the most important asset.

“So he’s much more focused on the importance of management because when moats are melting away you need someone who can adapt and be on their toes.”

The duo also reflected on the virtue of patience, especially when fundamentals look good but the stock is doing nothing. PenderFund deployed capital into such companies after the selloff earlier this year and Barr said they are now in the early innings of seeing the bounce back.

He said: “We’re patient; we’re always looking at the fundamentals and the longer it goes on the more excited I get because you can see the fundamentals and you just know the other side of the trade; everybody’s lost patience.”

Narhi added: “Not only that, Morgan Stanley came up with a note last year that said only 10% of trading volumes are done by fundamental investors - 90% plus are done by ETFs, passives, bots, algos, all that kind of stuff.

“Sometimes the prices go up and you’re scratching your head thinking, ‘does somebody know something I don’t’ and that’s not the case; it’s just some algo trading something that’s working on momentum in both directions.”