How Buffett's One-Foot Hurdle Turned Oil into Gold

Warren Buffett, the Oracle of Omaha, once famously quipped, "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over." This seemingly modest strategy led to one of Buffett's most spectacular, yet often overlooked, investment successes - his bet on PetroChina.

Back in 2002, when most investors were still reeling from the dot-com bust and wary of emerging markets, Buffett saw an opportunity that was hiding in plain sight. PetroChina, a state-owned Chinese oil company, had recently gone public, but its stock was trading at a fraction of its intrinsic value. While others saw a risky bet on a Chinese company in a volatile industry, Buffett saw a one-foot bar he could easily step over.

Buffett's approach to PetroChina wasn't based on complex financial models or insider information. Instead, it was rooted in his fundamental principle of value investing - buying undervalued assets and waiting for the market to recognize their true worth. He spent just seven minutes reading PetroChina's annual report before deciding to invest. In those few minutes, he saw something that others had missed - a company with solid financials, a strong market position, and, most importantly, a stock price that significantly undervalued these assets.

Now, you might be thinking, "Sure, but isn't investing in a Chinese state-owned enterprise risky?" And you'd be right - to a point. What set Buffett apart was his ability to see past the surface-level complexities and focus on the fundamental value proposition. He wasn't trying to predict oil prices or Chinese economic policy. He was simply looking at the numbers and seeing a massive disconnect between price and value.

If investing were a track and field event, most investors would be trying to pole vault over increasingly high bars, using complex strategies and taking big risks. Buffett, on the other hand, is content to walk around the stadium, looking for hurdles so low he can step right over them. The PetroChina investment was one such hurdle.

Buffett's initial investment in PetroChina was $488 million, representing about 1.3% of the company's publicly traded shares. At the time, this was seen as a bold move. China was still viewed as a risky market by many Western investors, and the oil industry was known for its volatility. But Buffett saw something different. He saw a company trading at a price-to-earnings ratio of about 5, meaning its annual earnings were about one-fifth of its total market value. In simpler terms, if you bought the whole company, you'd make your money back in just five years from earnings alone.

But Buffett didn't stop there. He continued to hold onto his PetroChina shares as the company's value grew. He watched as China's economy boomed and global oil prices rose, both factors that significantly boosted PetroChina's profitability. All the while, Buffett stuck to his principle of long-term investing, resisting the temptation to sell early and take quick profits.

This patience paid off handsomely. By 2007, when Buffett finally decided to sell his PetroChina stake, the investment had grown to a staggering $4 billion. That's a return of over 720% in just five years - not bad for stepping over a one-foot hurdle!

Now, let's dig deeper into why Buffett's "one-foot bar" philosophy worked so well with PetroChina. First, by focusing on undervalued assets rather than trying to predict market trends, Buffett was able to see value where others saw only risk. It's like being a bargain hunter who doesn't just look at the price tag, but understands the true value of the item.

Second, Buffett's approach allowed him to make decisions quickly and confidently. When you're looking for obvious value disparities rather than trying to outsmart the market, you can act decisively when opportunities arise. This is why Buffett was able to make his decision on PetroChina after just seven minutes of research.

Third, the "one-foot bar" method helped Buffett avoid the pitfalls of overthinking. By keeping things simple and focusing on fundamental value, he was able to tune out the noise of market speculation and geopolitical concerns that might have scared off other investors.

Buffett's approach requires something that's in short supply on Wall Street: patience and discipline. It's not easy to buy a stock and hold onto it for years while others are constantly trading in and out of positions. It's not easy to resist the temptation to sell when your investment has already doubled or tripled. Buffett's success came not just from his analytical skills, but from his ability to stick to his principles and let his investments grow over time.

You might be wondering, "Is this approach still relevant in today's fast-moving market?" The answer is a resounding yes. In fact, in an age of high-frequency trading and constant market noise, the ability to identify simple, undervalued opportunities is more valuable than ever. It's the difference between trying to time the market and investing in solid businesses at good prices.

In the end, Buffett's PetroChina investment teaches us a profound lesson about the nature of successful investing. It's not about making complex predictions or taking big risks. It's about having the wisdom to recognize value when you see it, the courage to act on your convictions, and the patience to let your investments grow over time.