Much of the financial world is all abuzz over the 50th annual letter to shareholders of Berkshire Hathaway, released this past weekend.Financial journalists, amateur Buffett sleuths, Graham & Dodd aficionados and just about everyone I know spent some quality time this weekend with this letter. They are all trying to identify that one pearl of wisdom that will give them that special insight to allow them to “invest like Warren.”
Let me save you some time: No, you are not Warren Buffett. And, with apologies to Taylor Swift, you are never, ever, ever getting to a place where you invest like him.
Why is that? Because Buffett has many things going for him that you do not, and likely will never, ever possess. I refer not to that pile of $73 billion dollars. Rather, I refer to the secret of his skill set and abilities, which is actually not much of a secret at all.
Warren Buffett’s not-so-secret-sauce is the combination of just three things, none of which I suspect you possess or deem of much importance:
I think one big thing you left out is Warren Buffet’s and Charlie Munger’s business and finance acumen. One of the mistakes I see in the media is focusing on Berkshire Hathaway as equivalent to a mutual fund or hedge fund. In reality it is a complex business conglomerate dominated by insurance companies with a large dollop of other unrelated businesses. It is likely that the interplay of the cash flow and investments between those companies as well as providing financing to the outside world plays a very large role in the out-size gains Berkshire has had over the past few decades.
Very few investors can match this level of control and even fewer have the business ability to pull it off. Even most of the hedge and private equity funds aren’t structured this way.
So, if you really want to be like Warren Buffet and Charlie Munger, all you have to do is learn to be like Peter Lynch, Ray Dalio, and Jack Welch combined. It only took them a few decades to figure it out. Other people should be able to follow that blueprint in a much shorter period of time.
Upon reading some of the pieces emanating from the annual Berkshire Hathaway shareholders meeting, I was motivated to check the performance of BRK-A (or BRK.A, or however your comparison tools at hand refer to the class A shares of Berkshire Hathaway) against my favorite long-term stock yardstick, AAPL.
Of course, BRK has a much longer history, although (most likely) a fair comparison is had if one compares the stock of Berkshire after Warren Buffett finally shut down the failing textile mills in the mid-1980s, so perhaps comparing the two from 1980 onwards is the most equable way to look at things. That was a shocker to an AAPL fanboy, and I had to grind though the data for a long time before I was convinced that the relationship shown was legit.
https://finance.yahoo.com/echarts?s=BRK-A+Interactive#%7B%22range%22%3A%7B%22start%22%3A%221980-12-02T17%3A00%3A00.000Z%22%2C%22end%22%3A%222015-03-02T17%3A00%3A00.000Z%22%7D%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22AAPL%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D
It would seem that Warren Buffett’s abstinence of the tech explosion in the markets has stood him well. But then I wondered how the comparison would look if I just examined the “new” AAPL (from the return of Steve Jobs from the wilderness, his decade of contemplation and learning) from 1997 to the present:
https://finance.yahoo.com/echarts?s=BRK-A+Interactive#%7B%22range%22%3A%7B%22start%22%3A%221997-07-09T16%3A00%3A00.000Z%22%2C%22end%22%3A%222015-03-02T17%3A00%3A00.000Z%22%7D%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22AAPL%22%3A%7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D
While this is in some sense a cherry-picking operation, both these views must be considered as “long term” (with the shorter of the two comprising over 17 years). I prefer to look at Apple as the old and new Apple, with the structure and philosophy of the company having taken a decidedly significant transformation in 1997, just as Berkshire Hathaway was transformed once Warren Buffett outgrew his emotion/testosterone-driven behavior when he realized that taking control of a sinking textile mill was not a terribly wise use of financial power. Both companies had vastly different histories from these points of change onward. And it is in this view that the more rapid growth of technology over financials blossoms.
But even in this 17-year view, BRK-A wallops the S&P 500, do not pity the Berkshire Hathaway stockholder.
Anyhow, regardless of being an Apple fanboy, I thought the mining of the chart data of these two giants was revealing. They both had lackluster origins, full of mistakes and blunders, and both grew to transcend those times, becoming tremendous engines of financial power. No one knows how long they will last, but at present, night shows the slightest sign of slowing down, as they wave good-bye to the rapidly disappearing market averages.
One could do worse than a portfolio split 50-50 between AAPL and BRK-A.
“night shows the slightest sign of slowing down” should be “neither shows the slightest sign of slowing down” … blame the autospellchecker and the fallible human proofer.
“While this is in some sense a cherry-picking operation, both these views must be considered as “long term” (with the shorter of the two comprising over 17 years). I prefer to look at Apple as the old and new Apple, with the structure and philosophy of the company having taken a decidedly significant transformation in 1997”
It’s just about 100% cherry picking. ;) I like to submit my golf card having eliminated all my sihtty holes. Usually numbering around 17…
Hey I’ve got a secret, in fact I’ll make you a wager. I can get the same returns starting today that Buffett does over the next few years, you pick the number of years (of course if he dies/disbands Berkshire first the bet dissolves) Want returns just like Buffett. It is simple just buy a share of BRKa or BRKb stock. I win the bet.
I’ve always thought he runs the best hedge fund (using the term loosely) for the masses. No 2/20%, in fact he takes almost nothing (granted coming up with $220,440 for one share might be tough, buying BRKb for $150 might be more realistic) for his skills, knowledge and resources. Of course he has become generally the second or third richest man in the world by providing this option to you.
There are many reasons the masses can’t invest like Buffett. For example how many people do you know receive calls from the CEO of Goldman wanting desparately to borrow a few billion. Of course Buffett loaned him the money with lots of strings that made Buffett a lot of money. Buffett gets all kind of calls from all kinds of people and companies wanting him to buy them out for a lot of reasons. Mostly it is because they know he will treat them fairly. It also helps to have a mountain of cash available. This is an advantage very few (i’d go so far as to say no others) have. And yes Buffett does have a special skill set, no question about that but honesty is probably his biggest asset.
Probably the most important lesson, proven time and time again, is the following:
Something is only a lesson, when there is a willing student.
It’s hysterical watching Buffett shred GOP mouthpiece Joe Kernan
The first question out of Kernans’ mouth “You buying IBM in smaller chunks than you could, people say that means you are concerned with cover your mistake of buying IBM.”
I don’t know where to begin!
I write CNBC every year begging them not to allow Kernan in that otherwise delightful three hour Q&A.
“Joe… chunks.” Those words seem to get paired in sentences with great frequency. :p