Every time I write something about Warren Buffett or Berkshire Hathaway – positive or negative – at least one dude comes out of the woodwork with a snide remark or comment along the lines of “the float from Buffett’s insurance business is merely leverage in disguise,” implying that there’s no genius involved, just a cash-flow parlor trick that’s enabled him to earn excess returns.
Others will chime in to remind us that Buffett’s stock picks aren’t the engine driving book value at Berkshire, its his wholly-owned subsidiary businesses – in other words, he’s not such an Oracle after all, just a good acquirer of companies with no need to time anything well. Still others will bring up his political influence and clout which allows him to simultaneously invest in Goldman Sachs while working on Congresspeople and Obama to back the bailout thus earning him instant profits.
And there are certainly kernels of truth in those criticisms – but admitting that does not mean agreeing that Berkshire’s success has somehow been “debunked”.
It has not been debunked – if anything, his head-and-shoulders above all other investors stature has only been cemented during this last five years. He came into the crisis as sanguine as the rest of us, then gradually figured out what was going on, took his time, waited for his pitch – and then struck, just at the perfect moment at the perfect targets. Warren is now up $3 billion on his Bank of America warrants, to say nothing of the income he’s earned thanks to the preferred shares that were packaged just for him. To say nothing of his loansharking masterstroke when Goldman and GE came a-calling.
Buffett’s singular exceptionalism has not been debunked at all, only solidified.
Very simply put – if it were so easy to do what Warren and Charlie have done, someone else already would have. Perhaps several people.
Why has no one else bought a defunct textile company with huge tax-free carry-forward net operating losses?
Why has no one else parleyed that advantage into a conglomerate structure replete with a fantastic insurance asset that allows for massive internal cash flows?
Why has no one else used the wealth derived from this endeavor to make powerful and influential friends throughout Corporate America and the US government?
How is it possible, in fifty years, that tens of thousands of investors haven’t come along and attempted to do exactly what Buffet has done? Surely, if that’s all there is to it there would be at least a few dozen imitators to have found some aplomb in his footsteps….no?
Until this dearth of Mini-Buffetts can be explained to me, I maintain that he is special and truly the Mozart of Investing (as Dougie calls him). What he’s built cannot simply be explained away as an insurance-related gimmick or the result of some Most Favored Nation status among the lapdog politicians who supposedly kowtow to him. Nonsense, if it were that simple you’d be doing the same thing as would I.
Don’t hate the player…