Is Warren Buffett’s style of investing still relevant in the face of rapidly evolving consumer behaviour?

Often referred to as the Oracle of Omaha, Warren Buffett is one of the most successful investors of all time. He began his road to riches at a young age, using his paper route earnings to purchase stocks. His early fascination with the stock market grew into a lifelong passion, helping his company, Berkshire Hathaway, become highly successful.

Over the years, he built it into a conglomerate with a diverse portfolio of businesses, including insurance, manufacturing, and retail. His investment successes have made him one of the wealthiest individuals in the world, but he is also admired for his philanthropy and simple lifestyle.

However, not everybody agrees with his investing style. Recently, the value investing strategy that he swears by has come into question. In July, Forbes contributor Jim Osman bemoaned “the availability of easy financial data” that has “resulted in market saturation“.

He feels this has left few stocks undiscovered or under-priced, limiting the efficacy of the value model.

Value investing involves picking undervalued companies with solid fundamentals and long-term potential. The philosophy, often outlined in Buffett’s annual letters to Berkshire Hathaway shareholders, emphasizes the importance of patience, discipline, and a long-term perspective.

While these simple rules remain pertinent today, Osman feels some adaption could be beneficial. In certain cases, I think he’s right.

Changing times

Let’s consider a stock Berkshire Hathaway recently sold as an example. Earlier this year, the firm unloaded 63.3m Paramount Global (NASDAQ: PARA) shares at a loss. The stock was down almost 70% at the time.

Buffett took full responsibility for the loss but the question is: why, in today’s world, did his traditional methods fail?

Paramount has faced significant challenges in recent years, leading to the price decline. The primary factors contributing to this downturn are the rise of streaming giants like Netflix and Disney+. As consumers shift towards streaming services, the traditional cable television networks that Paramount relies on have been experiencing declining viewership.

I believe a lot of this behavioural change is driven by a shift in how people make choices. Where previously we relied on the advice of professionals, today, customer reviews control the narrative. Before, we would speak to a travel agent, read Roger Ebert reviews or consult a stock broker. Now, we check Trip Advisor, Rotten Tomatoes, and Trustpilot.

The case for a recovery

While the Berkshire sale hurt Paramount, I think the stock could still recover. To do so, it must embrace the changing times and implement effective strategies to recover its market share. In particular, its strong brand and extensive content library could give it a competitive advantage. If it can successfully market it’s Paramount+ on-demand service to corner more of the streaming market, it may be able to achieve this.

Looking at the balance sheet, its debt is $14bn and equity $17bn. This is similar to Netflix, which is up almost 50% this year. However, it has less cash and lower interest coverage. Earnings are forecast to grow 77% per year and based on future cash flow estimates, the shares are trading at 75% below fair value.

I wouldn’t say it’s a stock I want to dive into right now but it’s in a decent financial position and could recover with the right strategy. Who knows, Buffett may even regret the sale one day.