By DAVID MOON, Moon Capital Management,
December 7, 2008
In the last two months, shares of the $152 billion
holding company, Berkshire Hathaway, have declined 33 percent, prompting some
investors and observers to ponder if the Oracle of Omaha has lost his
I'm not willing to make that bet.
Nor am I terribly concerned about Warren Buffett's
eventual departure from the company. Don't get me wrong; I wish him a continued
long and healthy life. My guess, however, is that one day Warren will die. So am I
The company has already announced that two people will
take his place: one for operations and one for investments.
That doesn't mean that I think Warren is irrelevant to the
success of Berkshire Hathaway. I simply conclude that the combination of many
factors, including the current price of the stock and the corporate culture,
make it an attractive investment.
Of course, I could be wrong. It's happened before.
In Knoxville, speculation
about successors has centered on really important things ' like Tennessee football. One
has to keep his priorities straight.
Unlike the Vols, however, bringing along a more
experienced father was not among the list of qualifications Buffett listed in
his 'help wanted ad' published in March 2007.
In the company's 2006 annual report, Buffett said he was
accepting resumes for younger managers with a successful track record and a
certain emotional mindset, able to manage large sums of
People are important. That's one of the reasons
corporate executives make exorbitant salaries. But how important are they?
There are a couple of schools of competing
Warren Buffett has long argued that the most important
assets of any organization are its people. When you buy a company you are buying
a collection of management experience.
Peter Lynch, the poster boy for successful investing in
the 1980s, used to explain that he tried to buy companies that any idiot could
run, because 'sooner or later one will.'
Which super-investor is correct?
Each of them.
A typical mutual fund might own hundreds or sometimes
thousands of individual stocks. By contrast, Buffett's investment style is to
own large positions in a relatively small number of companies.
When Buffett buys a company, it's a lot like getting
married. He typically (but not always) plans on owning the stock for a very long
time, so the quality of the people involved is important.
A Peter Lynch portfolio was less like getting married
and more like collecting a harem. The personality of any specific member of the
group didn't matter because there were so many of them. Besides, the odds were
that none would stay in the group very long anyway, as he constantly swapped one
stock for another.
Most individual investors are probably relegated to a
combination of these two investment methods. They follow the Peter Lynch
mindset with a relatively modest number of stocks.
However, because small investors aren't typically in a
position to know much about a company's top executives ' like it or not ' they
end up 'marrying' strangers.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).