During the 1997 Berkshire Hathaway Annual Meeting, Warren Buffett explained why he focuses more on the intrinsic value of businesses rather than market trends or capital flows. He dismisses the significance of who is buying or selling securities or macroeconomic indicators, such as market signals or Federal Reserve actions, as irrelevant to his investment strategy.
Buffett values a long-term perspective, prioritizing factors like a company’s future performance, market share, and pricing power. He advocates for evaluating stocks as business purchases, asking whether one would still buy the stock if the market were closed for five years. This mindset shifts focus from market noise to fundamental business quality and sustainability.
Here’s an excerpt from the meeting:
Buffett: We pay very little attention — we don’t pay any attention — to capital flows. In other words, we don’t really care who’s buying or selling any securities. Somebody is buying or selling each one. So, obviously, you could focus on the buyers. You could focus on the sellers. But you can say now that there’s $20 billion a month or so going into equity funds and all. But it doesn’t make any difference to us.
All we’re interested in is what the business is worth. What people are paying attention to, in terms of capital flows or market signals or whether the Fed’s going to move — that all changes.
Do you remember ten years ago, it was M2 that everybody — every — whatever day of the week it was, you know, “What’s M2 this week?” I always thought of having a mystery, you know, about whatever happened to M2? (Laughter) There’s always something that people are talking about.
There’s so much time to fill with chatter, you know, and pages to fill, that they write about all these things that, to us, don’t make much difference. We don’t care if the market closes for the next five years.
We care how much Coca-Cola has sold five years from now, what percentage of the world market they have, what they’re charging for it, how many shares are outstanding, and that sort of thing.
We just don’t care who’s buying or selling it in the least, except we like it when the company’s buying it. The same way with Gillette. We care about whether people are trading up in the shaving experience.
So capital flows and all of those macro factors that people like to write about a lot just have nothing to do with what we do. We’re buying businesses.
I really think it is not a bad mindset, whenever you buy a stock, to say, “Would I be happy buying this stock if the market closed for five years?” Because then you’re buying a business if you say yes to that. If you don’t say yes to that, you may not be focusing on the proper thing.
You can watch the entire discussion here:
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