Followers of Berkshire Hathaway are always scouring for signs that the
company’s 80-year-old leader, Warren Buffett, might be losing his investment
edge. Whether a genius or just extremely lucky, America’s most revered
investor has increased Berkshire’s cumulative average book value per share
by more than 10 percentage points more than the S&P 500 annually since 1964,
on a rolling five-year basis.
Things wobbled during the financial crisis but since then Mr Buffett has been
back to his investing best.
Managing
Age seems no barrier to picking winners but perhaps managing a $200bn company
becomes more difficult the older you get. Those fretting about investment
returns should also look at managerial risks within Berkshire itself. And
contrary to the popular view, the risks shown by David Sokol’s private
purchases of Lubrizol shares (before Berkshire bought the whole company) are
not about process or governance. Indeed, Berkshire should be praised for its
clear and simple guidelines.
Rather, human failings are the real culprits. If the audit committee’s
findings are to be believed (the accused’s lawyer has denied some of the
claims), Mr Sokol has been a naughty boy. But a key moment deserves closer
inspection. According to the report “Mr Buffett asked Mr Sokol how he had
become familiar with Lubrizol” and Mr Sokol replied “that he owned the
stock”. Mr Sokol allegedly offered no more details. But neither, it seems,
did Mr Buffett ask more questions, perhaps turning to sip Coke and gaze at
his screen.
Buffet disciples will hope the Sokol affair is a one-off. If nothing else,
though, it should remind investors that Mr Buffett not only buys other
companies but also runs one too. He must be fit enough to do both.
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