Rarely has a man been so quoted and so rarely followed, except maybe Christ and Mohammed. “Dude, I was at Berkshire with my buddies…are you stoked for Nvidia earnings next week?”
Going to the Berkshire meeting annually and hanging out with friends is different than actually spending day after day and month after month and year after year reading annual reports and nosing balance sheets. But then again, that is what is wonderful about investing–you don’t have to scale code, distribute machine parts or allocate capital from Omaha, you just have to find the right guys in the right business at the right reasonable price and sit on your ass and let them do it.
Some general tidbits on the topic of his “retirement,” which is a word, not a process. I would argue he is simply a junkie for investing and will die with an SEC folder on his chest. He will have a hand in Berkshire scheming until his last breath. Which is another interesting point from someone who has sold half his Berkshire every ten years under the heading of “he is in the last innings.” Younger people generally don’t know jack about the motivations of the older.
Like “several, not many,” I have had a personal path with Buffett. I was born in a time when youth saw sports and astronauts as aspirational goals, not to run the next Berkshire Hathaway. No one got investment books for their Bar Mitzvah. There were zero classes on value investing and Buffetology at UPenn in the early 1980s, arguably the most nakedly aggressive geographical path toward Wall Street. Columbia didn’t reload its “Graham and Dodd” curriculum until the 1990s with Bruce Greenwald. Most of what was being taught at schools and the Chartered Financial Analyst program, slightly later on, were increasingly teaching anti-Buffett: 100% efficient markets, grimly mathematical tools, stocks as a paper with trailing 12-month factors vs small pieces of business. So yes, things were in retrospect fiendishly easier then.
I wanted to go to “Wall Street” in 1984, but frankly had no idea what that really meant. It took a few years wandering around the alte kaker at Neuberger Berman to begin to “get it.” And sometime in 1986, I started seriously dating the eventual Mrs. Bronchick and I read a dorky article entitled “The Superinvestors of Graham-and-Doddsville” that was written by Buffet in 1984 to celebrate the 50th anniversary of the publication of Benjamin Graham and David Dodd’s landmark investment text, “Security Analysis.” Both turned out to be defining moments in my life.
The dork from Omaha doing nothing that was being done by most–the aspiration in NY in the 1980s was a mix of Gordon Gekko and “On a Clear Day, You Can See 2000.”(on the Dow) Like many, I started on the same Ben Graham path–a cheap statistical stock was a value, the cheaper the stock the better, and one averaged down until there was no quote available. (I think that was a Bill Millerism before he discovered Amazon.) And yes, I bought the cheap SUV while my wife hit the BMW hard, and I did buy Diet Cherry Coke by the case from Costco–one has phases in life.
And in keeping this readable in today’s world, the path of Buffett from Graham cigar butt value investing to the King of the Compounders with Munger whispering in his ear is arguably the most interesting of the Buffett tales and one that daily captures the time of any value-oriented investor.
What do you get vs what you pay for? And how long will this “I am getting something good” last? As noted in the canon, find a good business with high returns on capital–the moat–and hold onto it for dear life, and let time be the friend of your good business. So that is obviously what Buffett did very well more than a few times, and it simply isn’t easy because things change…and..you simply don’t have the will or the economic structure to withstand the inevitable awful periods. (Okay I have the stubborn will, but don’t have the outside permanent capital.) Buffett had both, and maybe one was a result of the other. And what of the alleged envelope in Buffett’s desk that says, “Kill me if I don’t sell Coke at 50x earnings next time.” And the likelihood of valuation multiples for the steady eddies going from 12x to 30x over the last 40 years of the great interest rate decline cycle to now go from 30 to 60..is..lower probability.
And size matters on the topic. He has noted things over the past few decades that sound like “Boy, if I weren’t running a trillion dollars, I would really be killing it.” The math of his record clearly demonstrates that: the mid 20’s returns on the Partnership and early BRKB leaked into SP500 +100 basis points for the last few decades. This is a huge note to yourself: there are a lot of long-term track records whose math heavily weights early days and smaller amounts of capital. It doesn’t count for you if you didn’t own it then.
Buffett can ONLY buy “Buffett stocks” if your ante is $10 billion a pop, and I think this is what the Buffett heads miss–there are still times and places for buying decent businesses very cheaply, and thus our “we look at Buffetts and Grahams.” It is just crucial to honestly understand the best you can what you own, for it dictates all future strategy–buy more on the way down? Sell at a reasonably determined price target? Position sizing? Like pie and wives, it is exactly the wonderfulness of Buffett and his 40,000 accolades in attendance that make too much of a good thing that is rarely that good in retrospect and decreases the probability of Berkshire being what it has been for the future.
Other thoughts. I have spent a lot of time trying to understand layperson insurance math and accounting, which is a natural state of affairs once you read a Berkshire Annual report. And not just the words part. To be clear, Nebraska’s insurance regulation is not like other states, and not coincidentally, it was favorable to how Buffett ran Berkshire. Being able to invest in huge equity positions and private companies IN the insurance company and not just at the Holdco level outside of regulation is not inconsequential. Thus, a proper accounting of the Berkshire investing record should include the fact that Berkshire was inherently a leveraged vehicle, just not conventionally understood with “debt.”
It was also noted to me recently and ruefully by another public company insurance CEO that not having an independent board harassing him on the nonsense d’jure in corporate America is a big help in making your mark. Yes, you still have to be Warren Buffett, but being able to be yourself without quarterly hounding has had to help. Good luck from here, Mr. Abel.
And therein lies the Greg Abel problem. He is undoubtedly able. He just isn’t Warren Buffett and I think the risk is that Team Berkshire continues to try to be. Culture has to be executed. He won’t get the benefit of the doubt. He won’t get the first call. He is overburdened by size. Think Larry Culp and GE, AIG, Citibank, Danaher, and Henry Singleton. Most insane successes associated with X guy rarely translate into success for the successor, and eventually, the weight of time suggests the right strategy is to break up the beast into manageable parts where merely outstanding people can run something right-sized for the benefit of shareholders. On a blind man and the elephant analogy, I would argue that swathes of Berkshire are not well managed and are merely billion-dollar subsidiaries with management turnover, managed with borderline indifference, and the best home is NOT in Berkshire.
And that is the fighting chance for superior returns from Berkshire going forward, versus, say, a 60/40 weighting in equities and cash.
