Tuesday, July 15, 2014

Buffett odds and ends

Apart from Buffett's investing acumen, there are three reasons why he's so rich:
• Berkshire's insurance operations have given him cheap leverage without the risk of a margin call.
• He's had a much longer career than other talented investors. Buffett started his hedge fund when he was 26. By contrast, Soros was in his forties when he started his fund. Unlike many billionaires, Buffett hasn't retired to become a philanthropist or collect bad art.
• His career coincided with a multi-generational bull market. If the bull market hadn't produced a steady increase in asset values, he would have come up against the law of large numbers much sooner.

Berkshire is a bad investment right now. The Buffett's Alpha paper calculates that Buffett's private investments have historically done much worse than his public investments, and now, after a spate of acquisitions, private investments constitute the lion's share of Berkshire's total investments: "Berkshire’s reliance on private companies has been increasing steadily over time, from less than 20% in the early 1980s to more than 80% in 2011."

Most of the information by and about Buffett isn't very useful for understanding his success. Even Buffett's shareholder letters aren't useful-- they're propaganda pieces that offer a limited, misleading picture of how he thinks about investing and how he operates. Besides Buffett's Alpha, Alice Schroder's interviews are the only things I've read that get to the heart of why he's been successful.

2 comments:

  1. Although you have a point, I would not been too harsh on Buffet: after all, he has a had a 60-year career without succumbing to dumb and dangerous deals despite his fame - that's no small feat and requires discipline and mental strength...

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    Replies
    1. His record is excellent, but IMO he gives people a misleading sense of how he's made his money, and that leads a lot of investors astray.

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