Undervalued Stocks – How Warren Buffett Buys Them

Booms, fads and bust seem to the order of the day when it comes to investing in the stock market. One tried and true to earn a good return in the stock market is to invest in undervalued stocks like Warrant Buffett.

Warren Buffett is perhaps the smartest investor of all time. By the time he took over Berkshire Hathaway in 1965, he paid up to $15 a share for it. As of early 2010, that same share is valued at over $120,000. That is not a misprint. Any arguments about undervalued stock investing?

Let’s look at his purchase of Berkshire Hathaway as a good example of value investing. He began buying stock in Berkshire for around $8 a share up to $15 a share. Why? What did he see in an old textile mill based in Massachusetts? What he saw after analyzing the company’s annual report was that Berkshire had working capital of about $19 a share. He was literally buying $19 for under $15. That didn’t even include the value of the mill and equipment! We all enjoy a sale where we can buy something at a discount, well apply the same idea to stocks like Warren Buffett.

Another example of him buying undervalued stocks was his investment in Sanborn Map Company. Doesn’t sound like an exciting stock you would hear people bragging about right? Well this little boring map company stock was selling for about $45 a share when the investment portfolio controlled by Sanborn was worth over $65 a share. Once again he paid $45 for $65 in liquid assets. That was just the value of the investment portfolio, the assets of the map company itself made the purchase more valuable.

These are just 2 examples of how Warren Buffett uses most undervalued stocks in increase his net worth. Investing like this does take some detective work, but it can still be done. Do some more research in this area of investing. It may not sound hot, but clearly it is profitable.