Why Warren Buffett’s Investing Style Will Outlast AI

Warren Buffett, the billionaire chairman and chief executive officer of Berkshire Hathaway, began investing in stocks at age 11. (David Williams / Bloomberg)

About the authors: Fritz Hauser and Phillip Hauser founded an investment partnership in 2006, guided by value investing principles. Today, they manage more than 150 million euros on behalf of more than 100 handpicked investors.

“What’s Wrong, Warren?” Barron’s pointedly asked in a December 1999 cover story. At the time, many saw Warren Buffett, who hadn’t touched the booming dot-com trade, as “too conservative, even passé.” The internet was revolutionary, and Buffett was out of step.

Today, AI has assumed the same role as the internet did then. Buffett successfully weathered the dot-com storm. The next generation of value investors is naturally wondering if they will weather the AI storm, too.

The investor and author Guy Spier doesn’t think so. He recently declared in Bloomberg that “The Golden Age Of Value Investing Is Over.” AI, he concludes, has erased the edge of value investing, which Buffett popularized.

My brother and I, having run an investment partnership for the better part of two decades, disagree.

If anything, conditions today feel ripe for a value-investing comeback: Index funds are trading without regard to value. There is a shrinking pool of fundamental investors, yet better tools to source and analyze ideas. AI is fueling a spike in irrationally priced companies, while political and geopolitical uncertainty is growing. Inefficiency is rising, not falling. So why declare the value investing game over?

Ask OpenAI CEO Sam Altman. In 2023, he predicted “some sort of an investment vehicle is going to figure out how to use AI to be like an unbelievable investor and just have a crazy outperformance.” Altman clearly thinks AI will revolutionize investing. But value investors and machines have long coexisted, both thriving in their own ways. After all, Renaissance Technologies’ Medallion Fund has been minting money for decades.

Value investing’s edge has often been attributed to diligence around information. Buffett is the classic example: combing Moody’s Manuals page by page, scouring the Omaha Public Library, and embracing Scuttlebutt by famously visiting Geico’s offices on a weekend as a youngster. Investing is a numbers game, and Buffett did the most reps.

That diligence may have mattered more before computers and now AI, but it was never the only edge. Let’s look at two others: time and temperament.

Value investing is like golf but with a two-year delay between swing and score card—and that is if you are lucky. Few are willing to endure such long feedback loops. But the “value” in value investing lies in playing the long game. Increasingly so.

Back in 2016, John Huber, who runs Saber Capital Management, argued that “the advantage of time arbitrage has increased for the very reasons why informational advantages have decreased: technology, the ease of gathering information, the short-term focus of market participants.” AI hasn’t changed that equation—it has amplified it.

Time is also inseparable from one’s capital structure. Many funds get trapped in a vicious cycle: Underperformance triggers outflows, forcing sales, depressing prices, and fueling more outflows. Take the U.K., where numerous public companies have seen an ever-increasing number of their institutional investors dump shares at depressed prices simply because they had no choice. Investors with patient capital and a long-term mind-set can turn that selling pressure into a buying opportunity. We enjoy helping out forced sellers—at the right price.

In his first nationally broadcasted TV interview in 1985, Buffett credited his success not to intellect, but to his even-keeled temperament. It was forged by the principles of value investing: insisting on a margin of safety by buying well below intrinsic value, thinking like a business owner with a long-term time horizon, and using the market’s mood swings to your advantage.

AI may help process data, but it cannot replace the value of a strong and stable temperament. It cannot summon courage or conviction under pressure. The courage to buy in March 2020 when Covid-19 was wrecking global markets. The conviction to invest in Italy during the euro crisis in 2012.

But that isn’t enough. If Buffett has a superpower, it is his temperament as expressed through adaptability. In that same 1985 interview, he claimed never to have bought a technology company. Fast-forward to the 2000s, and he was invested in IBM, then Apple, and even Oracle for a short while. He shut down his partnership in 1969 when valuations were absurd and pivoted to building Berkshire. He started acquiring private businesses when they offered better value. When markets changed, he adapted. That kind of temperament is immune to AI disruption.

There is no denying times are changing. Many investors already incorporate AI into their work. Filtering out nonessentials has long been a key challenge in doing investment research. AI can help separate actionable insights from the flood of noise, boosting productivity.

But it can just as easily multiply distractions.

Other ideas exist: focusing on “low-AI” companies, pursuing activism that requires real-world heavy lifting, or finding market niches where competition is inherently low. The list is endless.

At our firm, we are building an internal large language model trained to think like us and apply our pattern recognition to more than 40,000 public equities with the click of a button. Ideally, it then serves up the best alternatives, tailored to our subjective taste. This could significantly speed up the research process. But somebody still has to make the decision by weighing the options, overcoming the occasional mistake, having the temperament to pull the trigger (or cut your losses) at the right time.

Today’s AI bubble will create mispricings, just as past bubbles have. But I can tell you from experience, value hunting is still a worthwhile exercise. Case in point: Ever since investors stopped reading Moody’s Manuals, the A’s have gotten way more interesting. Finding and acting on these opportunities takes time and temperament—the enduring edge, even as tools evolve.

Buffett is stepping down at the end of the year. But he has provided the next generation of value investors reassurance as they confront AI. “New things coming along don’t take away the opportunities,” he said in 2023. “What gives you opportunities is other people doing dumb things.”

As long as humans behave emotionally and succumb to folly, value investing won’t only survive, it will thrive.

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