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Billionaire investor Warren Buffett isn’t usually known for being outspoken. The Berkshire Hathaway CEO is generally pretty diplomatic when it comes to talking about controversial subjects.
At the 2023 Annual Shareholder Meeting though, Buffett offered an uncharacteristically forthright view on artificial intelligence (AI). And investors would do well to take note.
Buffett on AI
In response to a question about how AI might reshape value investing and cause value investors to think differently, Buffett said:
“The tech doesn’t make any difference… New things coming along don’t take away the opportunities. What gives you opportunities is other people doing dumb things. And I would say – in the 58 years we’ve been running Berkshire – I would say there’s been a great increase in the number of people doing dumb things.”
Buffett pointed out that there’s been a lot of technological change since he took over Berkshire Hathaway. But the company’s done incredibly well without any deep technical insight.
It’s a fair point that a lot of the returns in recent years have been driven by Apple. But Buffett’s stated that Berkshire’s investment was based on the firm’s consumer appeal, not its superior tech.
Doing dumb things
According to Buffett, making money in the stock market is about avoiding doing dumb things. And I’m fighting hard to try and follow that advice in my Stocks and Shares ISA at the moment.
Shares in private equity firm 3i (LSE:III) are trading at a 50% premium to the value of its portfolio right now. And from my perspective, that makes it very tempting to sell my investment.
This however, looks like a bad idea. I’m optimistic the stock’s going to be worth a lot more 10 years from now and I don’t know that the share price is going to fall in the near future.
Giving up what I see as a good long-term opportunity without anticipating a better one is almost certainly a dumb thing, by Buffett’s standards. But the valuation still makes it tempting to sell.
Management
When it comes to doing dumb things, buying and selling shares is only half of the story – the other half’s management. Fortunately, 3i’s leadership has an outstanding record in this regard.
As a result, the firm’s largest investment is discount retailer Action. It’s a big part of the overall portfolio and this brings risk, especially in the context of a company trading above its book value.
This however, is the result of 3i’s big competitive advantage. Rather than taking in external capital – which often arrives when prices are high – it focuses on investing its own balance sheet.
It means it has a unique ability to wait for opportunities and be aggressive when they present themselves. Or as Buffett might put it, to avoid doing dumb things.
Being a good investor
According to Buffett, investing discipline matters much more than technical expertise over the long term. Unfortunately, the Berkshire Hathaway CEO also thinks this is going to be beyond a lot of people.
That might sound like a tough realisation – and it probably is. But for investors looking to build wealth through the stock market, it’s a positive sign of potential opportunities to come.
