In a recent Financial Times article, Terry Smith reflects on Warren Buffett’s retirement with a Shakespearean nod: “I shall not look upon his like again,” he writes, invoking Hamlet. “Since Warren Buffett announced his retirement from Berkshire Hathaway this month, financial commentators have been asking themselves the same question: can anyone live up to Buffett’s successes?”
His answer is clear. “I’m afraid I agree with the gloomy prince of Denmark. In my view, no one will be able to replicate Buffett’s performance record as no one else will be able to replicate these advantages.”
Over 60 years, Buffett compounded Berkshire’s share price at 20% annually — “a rate twice that of the S&P 500, a fantastic record, as we have spent the past two weeks hearing about.” But this feat, according to Smith, wasn’t just about picking stocks. “Buffett was a good stockpicker, but this alone does not account for Berkshire’s performance… He was able to forge an effective partnership with Charlie Munger… who died in 2023.”
Munger’s influence was pivotal: “Munger must have some of the credit for turning Buffett from an investor obsessed with valuation… into a quality investor who sought good businesses which could compound in value. He also helped educate the Sage in the use of float.”
Buffett’s use of float — free money to invest — came from unlikely sources. “One was American Express during the era of travellers’ cheques… The result was that Amex had a free float of cash.” Another was trading stamps. “They were an early form of loyalty programme… hence the float in the hands of the issuer. Buffett experienced the benefits of this through Berkshire’s ownership of Blue Chip Stamps, which came courtesy of Munger.”
And then came insurance: “Berkshire owned a series of insurance operations… the result can be a free source of funds.” Add to that Berkshire’s unique structure: “a closed-end company, which he controlled.” Unlike open-ended funds, “money invariably arrives and leaves at the worst times.” But Buffett could “stick to his strategy.”
That’s why Smith believes replicating the feat is nearly impossible. “It seems unlikely that any regulators will allow someone to control an insurance company and invest the premiums in equities.” And as for fund structure? “The world is moving in the opposite direction to Berkshire Hathaway.”
Still, there’s a lesson: “Buffett quickly realised that distributing earnings from a company which was able to compound at 20 per cent per annum was folly.” That one 10-cent dividend in 1967? “If… retained in Berkshire’s stock, it would have been worth about $4.8bn today.”
And yet, Smith ends on a wry note: “You will continue to hear advisers… tell you that the majority of the return from equities is from dividends. That Warren Buffett — what does he know?”
You can read the entire article here:
There won’t be another Buffett because no one will have his advantages (FT)
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