Man Without Qualities

Saturday, March 08, 2003

Mr. Market: Towards A Theory Of Warren Buffett?

Warren Buffett is often described without irony as a "sage" or "oracle" - indeed, the "sage" or "oracle" from Omaha.

Mr. Buffett's impressive fortune is often said to depend on a brilliant understanding of - and investments in - valuable consumer "brands," and, interestingly, insurance. His letters to his stockholders are treasured by many. Unlike other hugely wealthy people - including his reported friend Bill Gates, the only person reportedly wealthier then he is - Mr. Buffett has cast himself as a curiously broad, if not exactly general, business and social gadfly, often with respect to topics not within his known competencies (one is rather inclined to accept that he probably has valuable opinions on many thngs not included in any recognized "competency"). Some of his political positions border on those of a crank: he has, for example, called for things like unilateral nuclear disarmament - although he says a nuclear attack on the United States within the next few years is a "virtual certainty."

A number of books and other materials both by and about Mr. Buffett purport to reveal the "revered" Mr. Buffett, his investment "method" or "secrets" (sometimes, the "Warren Buffett Way") and what is often described as his "wisdom." He is generally well regarded. By about 4-to-1, respondents to at least one unscientific on-line poll say Mr. Buffett is a "straight shooter," and not "full of baloney." But no sensible person could believe that a man who has made more than $30 Billion by investing reveals any meaningful portion of his "method" in a book anyone can buy for, say, twenty bucks - or check out of the public library for free. He is popularly regarded as favoring good corporate and fund governance structures and opposing boards that are "cocker spaniels, not Dobermans." But Mr. Buffett has sat on many corporate boards, and he has apparently never acted like a Doberman. After Disney's acquisition of ABC/CapCities, one might have thought that Mr. Buffett would have something to say about the Disney board - among the most notoriously passive boards in the country, but Berkshire Hathaway sold its Disney holding - leaving Roy Disney and his partner, Mr. Gold (neither of them "independent" as the NYSE defines that term) to play the role of Dobermans on the Disney board. The seven member board of directors of Berkshire Hathaway includes Mr. Buffett, his wife, his son, Charles Munger (Mr. Buffett's long time friend and bbusiness partner, and a founder of the law firm Munger Tolles & Olson - which continues to represent and receive fees from Berkshire Hathaway) and, of course, Mr. Olson. Revised New York Stock Exchange rules do not consider Berkshire Hathaway's board to be sufficiently "independent" - and Mr. Buffett is searching for additional directors from among the company's long-time, happy shareholders - which is not exactly the first place one would look for substantive "independence" from Berkshire management.

His coverage in the media is remarkable. In addition to what is described above, the Washington Post has editorialized Mr. Buffett as a far-seeing financier. Are "wisdom," "revered," "sage," "oracle" and "far-seeing" terms one often hears applied to the often-villified Bill Gates, for example? But investors who bought and have held Mircosoft stock since, say, the mid 1980's have made much more than those who invested in Berkshire-Hathaway at that time. How about John Rockefeller, Andrew Carnegie or even J.P. Morgan - who designed the Federal Reserve System which many believe to be the bedrock of American and world prosperity?

The most striking aspect of so many of the publicly available materials respecting Mr. Buffett is that they are obviously overreaching, wrong and incoherent - while he is rarely any of those. For example, Mr. Buffett is highly active in restructuring many of the companies in which he invests, including establishing very specific executive compensation schemes which pointedly exclude executive stock options, but a typical howler about him asserts: "Solely due to his stock picking abilities, Buffett is consistently one of the five richest men in America." What ties together the often apparently inconsistent strands of Mr. Buffett's considerable presence? How much of an understanding of Mr. Buffett can be garnered without pretending to second guess or understand his indisputable and probably largely unreachable investing genius or delving into his irrelelevant personal life or childhood?

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