Monday saw the 80th birthday of Warren Buffett, signalling as good a reason as any to pay homage to the man who has proved himself to be the greatest investor of a generation.
Our industry regularly uses the term ‘star manager’. Since this phrase became common parlance, many stars have burnt brightly for a short period, perhaps finding themselves lauded a little too much for their actual achievements. When compared to the long-term investment genius displayed by Buffett, the accolade of star manager is put firmly in its place.
Our willingness to seek out stars comes from the fact we all love a winning investor, and consequently love to hear their views and watch their every move. Very few are followed quite so devotedly as Buffett.
This issue sees a number of senior investors pay tribute to Buffett and the constant theme running through their commentary is his clear vision and simple philosophy.
Buffett believes companies he invests in should be valued below their intrinsic value and make returns on capital above capital cost.
This sounds easy in theory but, as Buffett has proved, only very few manage to achieve it in practice. This simple mantra contrasts with some of the more sophisticated strategies and black-box offerings that are often marketed to investors. His favourite investment is one that has returned 40% on invested capital and simply produces and retails chocolate.
Buffett has not been perfect – he has lost money and made wrong decisions, but his wins have overshadowed these losses. The wealth of his original investors, according to LV=Asset Management’s Michael Crawford on page 14, is reflected in the community of Omaha, where Buffett is based, which contains well-funded medical research and university facilities.
He was famously prophetic when it came to the use of derivatives. Even as many in financial services were hailing them as a risk management panacea, he was describing them as financial weapons of mass destruction.
It is his calmness in a crisis, borne out of experience, from which investors can learn most today. As he says: “You pay a very high price for a cheery consensus. It will not be the economy that will do investors, it will be the investors themselves. Uncertainty is actually the friend of the buyer of long-term values.”
He is of course right but it takes courage and conviction to take advantage of uncertainty.
