Here’s an interesting piece of information regarding Warren Buffet’s investing style.

For the uninitiated of ultra-Warren Buffet fans, his investing style can be described as a much more polished version of Benjamin Graham’s value investing. If Ben Graham played basketball he’d be Dr. J, while Warren Buffet would be Michael Jordan. Now in this analogy I can’t tell you how to perfect Michael’s signature turn-around fade away, but I can tell you a sneaky dribble move he use to pull to get open.

Warren Buffet believes in fundamental investing, something that these days of computer algorithms and index investing is becoming out-of-style and prehistoric. But hear me out on just one example.

I think Warren would like this one:

Target

The timeline for Target Corp. imploding data breach of over 40 million Americans phone numbers, addresses, credit and debit cards was around late November of 2013.

In the aftermath of the data breach Target met with state attorneys and the justice department and did internal evaluations on just how much from a monetary value did Target customers lose in fraud.

The fraud couldn’t have come at worse time, late November/December or the end of Q4 is crucial time for retailers to ramp up sales in time for the holiday season. Depending on the retailer, this time period can make or break a companies yearly revenue stream.

Sure this will hurt Target in Q4 of ’13 and you can see that as transactions fell 3-4% compared to the holiday season a year earlier. But this is Target, a massive grocery store chain that consumers rely heavily on for day-to-day shopping needs (my dad as an example). So looking at this from an investors point of view a promising time to invest in Target may have come up with the great power of hindsight.

So how did the stock react during this time?

In clarification, the time period is from the time Target announced the data breach publicly (December 19th, 2013) to when their CEO Steinhafel resigned (May 5th, 2014)

The S&P 500 as a benchmark during the time period produced a 4% return while Target produced a -3% return, under performing the benchmark by 7%. 

So where does Warren Buffet play in all of this?

A part of value investing that can be intuitively inferred is the value part. The data breach for target was unfortunate and the timing of it gave the company bad publicity during the holiday season. However what fundamentally changed in the stock? 3-4% transaction loss, which did fundamentally hurt the company, but is that a sustainable (or permanent) loss?

Sure, this hurts Target’s brand (which is apart of its value) its just hard to put a monetary amount on it, wait why not? Lets put the value at however much sales it lost as a result of the subsequent reaction to the data-breach. The reaction of its stock price (a 7% under performance) Buffet would argue does not correlate with the fundamental loss of the company.

Remember, this isn’t a company heavily reliant on 4th quarter sales (although it is a factor) I would consider Target up there below Dollar Tree as a non-cyclical consumer staple. 

So the question is, if you invested after CEO Steinhafel ‘s resignation, how would you have done?

Quite well.

The S&P 500 has produced a 13% return to-date from CEO Steinhafel’s resignation

Target has produced a 28% return to-date from CEO Steinhafel’s resignation

That is an out performance of 15%

Warren would like this kind intuitive investing a lot. Value Investing Is Not Dead.