The dramatic entry of Volkswagen into the US government’s black book, and its corresponding fall in share price opens up the type of opportunity which has made Warren Buffett the world’s most noted industrial investor.
This is how Buffett would see it: There is no material change in VW and its global structure. Only that the US government has decried it for shifty emissions testings. It is a test that is in question. Not the product. After much weeping and wailing and wringing of hands. And after VW has worn a hair shirt, this will be perceived everywhere.
Everyone will go on buying VWs. The share price will correct itself and start to rise. Therefore I will buy now at the bottom of the emotional plunge. The reason? Nothing has happened to the value of the company. Only to the temporary perception of the value of the company.
In essence this is value investing. The product, its brand, and its value remains unchanged. Only opinions about it have changed.
This is what Buffett did when he re-invested in American Express. There had been a flurry centred on ethics. Not on the product itself, the card, which Buffett saw everyone still using. But the perceived value of Amex had dropped. Not the actual value. So Amex duly flourished as an enhanced Buffett cornerstone investment. The moment passed.
In the Buffett formula simplicity as in all great successes reigns. The market is based on rumour, impressions, and on opinions. Value investing is based on a cool evaluation of the value of the company and its product. Not on passing clouds that hover over it.