[DesertCat]

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Interesting post. If a stock has a lot of analyst coverage (we can and probably should have a debate on what constitutes alot of analyst coverage) I'm going to be very reluctant to get involved FWIW.

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For anyone running less than $100M, this is always the correct strategy, as long as you are good at estimating risk. Better bargains are always found in less traveled markets.

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A couple things about Buffet, he tends to buy companies outright. I realize he makes other investments but I'm fairly certain that the major share of his success is acquiring companies and including them in the Berkshire-Hathway conglomerate. Could be wrong about that.

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Buffett didn't really start buying lots of companies until his portfolio got enormous. He did buy BRK in the early 60s, Sees Candies in the early 70s, but until the late 90s (his first 40 years) he was predominantly a stock market investor. I think it was his purchase of Gen Re in 2000 that finally shifted the mass of the company to wholly owned subsidiaries.

The problem with having a $30B portfolio as a value investor is ideally you only want to invest in your best ideas, five or so at a time is ideal. That would be $6B each. There are a very limited supply of companies that are liquid enough to allow you to buy $6B in stock in a reasonable time frame without driving the price sky high.

So he tends more and more to just buy companies outright. It's the same skill/decision as purchasing stock in a public company, finding the right price on a good business based on the cash flow that will accrue to him as a shareholder. There just isn't an end game since he'll never sell subsidiaries.

A recent example is his $4B purchase of the Israeli company Iscar. But he'll also buy smaller companies, right now the bar is a minimum of $75M in net operating income per year. He actually has an "ad" in every annual report that lists his criteria, and mentions he'd like to do a $20B acquisition.

One of the most interesting things about Buffett is how much he's changed from just an investor who sits alone in an office reading thousands of annual reports a year (with his PC gathering dust), to a CEO of a company with 73 subsidiaries. The change is, none. When he buys a company he leaves it in the owners hands to run, and just expects a monthly report from them on results. Buffett still spends his time reading annual reports.

Berkshire's 73 subsidiaries have 217,000 employees and nearly $100B in annual revenue. Headquarters headcount is 19 people, almost entirely to produce Berkshire's 9,000 page federal tax return. Buffett's management techniques are counter to everything you would learn in an MBA program or from the GE school of hard driving CEOs.

But so far it's worked very, very well. Not by accident, but by careful design. Buffett may not be able to predict the behavior of crowds in the stock market, but he's an expert on individual human nature. He is really good at buying good companies at good prices where the owners are honest, trustworthy, enjoy what they do, and he is able to motivate them to continue to work hard even after he buys them out. All while he's still plugging away reading annual reports and finding gems like Petrochina.