Buffett's past investment techniques may be more useful to the average investor than his high-dollar practices today, Chris DeMuth Jr. wrote for SeekingAlpha.com.
DeMuth, a partner at Rangeley Capital Partners of New Canaan, Conn., writes that in 1969 Buffett was an "arbitrage specialist" who exploited "workouts" such as liquidations, acquisitions, reorganizations, spinoffs and other business events that were reported publicly, mostly in newspapers.
"Buffett's edge wasn't that he had better information than everyone else. It was that he understood that in these 'workouts' held the potential for significant mispricing by the market, where the market price of the security no longer accurately reflected the true value of the underlying asset," DeMuth wrote.
Buffett's sophistication in spotting such bargains meant he could cash in while others hesitated. DeMuth cites Buffett's discussion of Commonwealth Trust Co. in his 1959 letter to investors. The bank's stock was selling for about $50 while its intrinsic, or true, value was at least $125.
The market price was low because the bank wasn't paying dividends, and the low price made it a potential takeover target. Buffett bought enough of its stock to influence merger proposals.
While average investors might not be able to buy as much stock, DeMuth wrote, they do stand a chance at finding such mispriced companies, even though Buffett himself has said they are "very difficult to find on the right terms."
"Buffett is a winning card player and he plays with an edge. His investment style has evolved over time as his edge has changed, but he always maximizes his edge," DeMuth wrote. "Make no mistake, what Warren Buffett does is neither simple nor easy."
In the end, DeMuth recommends buying Berkshire shares "to invest alongside Buffett."
For more on Buffett, I would recommend Tap Dancing to Work: Warren Buffett on Practically Everything
Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.