Warren Buffett is the 20th century’s greatest investor. More than that, he is a showman, explaining multibillion dollar investments with metaphors that make him sound like a ruminative Nebraskan corn-farmer leaning on a five-bar gate. This weekend, he hosts the Berkshire Hathaway shareholders’ meeting in Omaha (rechristened “Woodstock for Capitalists”). His investors may feel aggrieved by the fall in share price. They may even be unreceptive to his folksy one-liners. But they should worry less about what he is doing and fret more about what they will do without him.

Since 1965, the assets-per-share of Berkshire Hathaway have grown by an average of 20.3 percent a year. This is more than twice the return from the S&P 500 (including dividends) in that time. His “value investment” strategy is simple; he tries to spot bargain acquisitions and he holds them. All that matters to him is whether what he buys is intrinsically worth what he pays for it – not whether it achieves short-term capital gains.
Mr. Buffett, however, is a victim of his own success. Even though he is quite explicit about the geological time-frame over which he invests, his keen eye also makes him a staggeringly good short-term investor. Year-on-year, Berkshire Hathaway’s assets-per-share outperformed the S&P 500 for 38 years of 44. Before this last year, Berkshire Hathaway’s assets-per-share had only ever fallen in one year – in 2001.
But Mr. Buffett is not omniscient. In 2008, assets-per-share fell by 9.6 percent. The share price has fallen by nearly a third. As he admitted in his February letter to shareholders, he has made some big mistakes. He over-estimated the oil price and left Berkshire Hathaway overexposed to finance. What is more, he has saddled the company with some risky long-term bets.
Mr. Buffett is also not immortal. At 78 years old, this is not an idle concern. Murmurs about who will succeed him are growing in volume. He seems to have learnt his interviewing technique from the Parable of the Talents; he said two years ago that he would issue four would-be successors with $5bn and then judge them on their investments. There is, however, no news on this process.
This weekend, shareholders will ask some tough questions. Some of them will focus on his performance. While Mr. Buffett has not played an immaculate game, he should rest easy. He should not be harangued for failing to make short-term returns that he never promised in the first place. He has, in any case, comfortably outperformed the stock market in the past year.
When it comes to questions of life and death, however, Mr. Buffett should be more forthcoming. He would be wise to reassure investors that a succession plan is being carried out. Warren Buffett is a phenomenon. But no one, not even him, can beat the market for eternity.
(Source: The Financial Times)
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