Warren Buffett- The Master- Trying To replicate Him Is A Mistake

May 9, 2016

Seeking Alpha chose not to publish this piece….

Warren Buffett- The Master- Trying To replicate Him Is A Mistake

  • A brilliant investor that plays on a different field
  • Buffet rises above current U.S. political divisions
  • The master of public relations and marketing
  • Can small investors achieve Buffet like results?
  • The best money manager in history but those days could be over

I worked at Salomon Inc. from 1981-1997. Back in 1987, following a crash in the stock market, the price of the company stock dropped to a level where corporate raider Ron Perelman began buying stock in what many considered an attempt at a hostile takeover.

Warren Buffet appeared to rescue Salomon and Chairman John Gutfreund from the corporate raider. That was my introduction to the man, the legend from Omaha, Nebraska. At the time, the money from Buffett was a God-send. Buffett’s investment style was passive; he bought into companies with strong management and let them do their thing. Salomon was nothing more than another company in Berkshire Hathaway’s portfolio. However, it was an odd investment for the Oracle of Omaha who has never been shy about his distaste for the investment bankers and traders of Wall Street. “Wall Street is the only place that people ride in a Rolls Royce to get advice from those who take the subway,” is how Buffett feels about investment bankers, analysts, and brokers. When it comes to traders, he has said, “When you combine ignorance and leverage you get some interesting results.” Buffett has been a modern day Will Rogers when it comes to his comments; his money makes him a modern day Vanderbilt, Carnegie or J.P. Morgan.

A brilliant investor that plays on a different field

The investment in Salomon was not altruistic; Buffett got one hell of a deal because, by 1987, he was Warren Buffett. He bought a 12% stake in the company for $700 million with a twist; the preferred shares paid a 9% dividend and were convertible into common stock. Each party got what it wanted; Salomon got a ‘silent’ partner and Buffett bought an undervalued asset with an incredible yield. “Be fearful when others are greedy, and be greedy when others are fearful.” Salomon was fearful of Perelman and Warren saw value in the Wall Street asset. A few years later, Warren learned another lesson when Salomon became embroiled in a Treasury auction scandal. “It takes 20 years to build a reputation and five minutes to ruin it.” Warren found himself running the Wall Street firm in the wake of the scandal to protect his investment. Warren got a lot more than he bargained for, headaches and education. Warren’s formula for investment has been consistent over the years, and his returns have been spectacular. The equity investment with a dividend kicker has been the bomb.

Last week, Berkshire Hathaway held its annual meeting in Omaha. The event has developed into a carnival atmosphere with huge media coverage as the cult of Buffett investors and admirers take a Haj-like pilgrimage to the Midwestern city. Buffett is perhaps the best and certainly the most high-profile superstar investor in history. He has found a way to invest on a playing field that only he can afford to play on. Investors in his company have profited over the years. He has consistently been amongst the top five richest people in the world.

Warren Buffet and his partner Charlie Munger have done a great job for investors in Berkshire Hathaway. However, other than buying stock in this company run by two legendary octogenarians, there is very little chance of replicating his returns. That is because their power of negotiation comes from the power of their purse. They are billionaires, and the vast majority of investors are not.  Another one of Warren’s extraordinary talents is that he is a master at public relations, his folksy optimism is contagious, and it increased results as his wealth and profile have grown to monstrous proportions over the decades.

Buffet rises above current U.S. political divisions

One of the interesting psychological things about the Buffet approach has been an ability to rise above politics and stay below the radar using influence and reputation. There is an environment of divisiveness in the United States between the wealthy and everyone else. The progressive platform of the Democratic Party in this year’s election has been a result of the rise of Bernie Sanders as a candidate. The appeal of a self-proclaimed 74-year-old socialist to the youth of the U.S. is in direct contrast to the wealth accumulated by investors like Buffet and Munger. However, their folksy appeal and statements put them in a different class than Wall Street, the target of anger for many following the trappings of the 2008 housing and global financial crisis.

Buffett has positioned himself as an icon; he’d likely win the Democratic nomination hands down if he chose to run. The truth is that a lot of the division within the United States today stems from a system where the top 1% of wealth is a target of the progressive platform. Like it or not, Buffett resides at the very top of that upper echelon. As an insurance company, those juicy dividends he negotiates are not taxable. Berkshire Hathaway has never paid a dividend to shareholders. Therefore, the great wealth amassed by Buffett, Munger and the rest of their shareholders, escape the clutches of the IRS until the sale of shares– a loophole that has served him well and one that has escaped the focus of progressive politicians. Or maybe, as the famous line from the epic movie The Godfather goes, “those politicians in his pocket”.

Behind the folksy approach is a shrewd and ruthless businessman. When he makes an investment in a business he purports to be a hands-off investor but in the case of Heinz and many other companies, even his partner Charlie Munger has noted that Buffett is notorious for slashing CAPEX. The essence of Buffett has been his folksy Midwestern charm and appeal.

 The master of public relations and marketing

At a time in this nation where diet and obesity have become a concern, Buffett used the occasion of his recent annual meeting to state, ‘I really wish I had a twin that had eaten broccoli his entire life…I know I would have been happier, and I think the odds are I would have lived longer…I think Coca-Cola is a marvelous product”. As the major shareholder of Coca-Cola for decades, that statement is nothing more than a brilliant public relations job that conveys a message that is contrary to scientific research. However, the word of the Oracle sells the product. Buffett says look at me I am in my mid 80’s and I drink this product five times each day and have for my entire life. That is the most effective kind of marketing for cherry-coke.

Buffett shares the populist distaste for the financial industry. “There is far more money made by people in Wall Street through salesmanship abilities than investment talent,” according to the billionaire at his latest annual meeting. A war chest of cash enhances his talent for identifying opportunity. Huge amounts of cash puts him in a negotiating position like no other, where he can arrange for better than the best financial terms. In fact, a Buffett investment has come to be a blessing for a company as well as free marketing by the most effective spokesman in the world. Therefore, Buffett does not need Wall Street; Wall Street needs Buffet. What a wonderful position to be in, however, the vast majority of the other over 323 million people in the United States cannot begin to replicate his investment style as he has created the ultimate franchise.

Can small investors achieve Buffet like results?

The answer in short is, no. Unfortunately, unless you are a billionaire, the Buffett investment philosophy amounts to a pipe-dream. Ordinary people that save for rising educational expenses for their children, a home or retirement, cannot afford the ups and downs in markets that Warren can live through and from which he can extract massive profits. That is why when markets suddenly become volatile and move lower, it is the rest of us who run for the hills while Warren can make spectacular deals. Warren’s philosophy has worked well for those who bought and held his stock and went along for the ride. At this point, that ride has an expiration date given his age. There are no guarantees that his successor will have the same combination of investment acumen, political influence, salesmanship, respect and stature as the Oracle, in fact, it is highly unlikely.

The best money manager in history but those days could be over

Everyone dies; it is a fact of life. One day, hopefully not shortly, Warren will pass as have so many other greats from history. History will remember him as the greatest investor who ever lived in the United States, perhaps the world. His legacy will transcend even the most powerful investors and businesspeople. Vanderbilt, Carnegie, Astor, Morgan, Kennedy and the others will pale in comparison with Mr. Buffett. People in the decades and centuries to come will study him in an attempt to replicate his results. Given a combination of talent, position, timing and personality the likelihood is that the performance is one of a kind.

One of Buffett’s strengths is his ability to manipulate. One of his most famous quotes is that “I always knew I was going to be rich”. After he reached a certain level of wealth the drive to pile up the points or money on his scorecard during his lifetime became motivation. While he has made others rich too, Buffett’s ability to come across as a humble and understated figure is likely a mirage masking a man that knows he has developed a Midas touch because of his wealth, reputation and an uncanny ability to create a playing field on which only he can operate.

There are 60 billion reasons (and counting) to love and respect Warren Buffet. All of the praise is well-deserved. However, for those of us that are mere mortals saving for the future, there is a subordinate position to the billionaires of this world. Warren does not invest with emotion. He seizes opportunities created by the emotions of others, the fear and the greed that is so much a part of human nature. He uses market volatility as an opportunity to take advantage of the emotions of others to increase his wealth. His other skills enhance the result. Almost all other investors in a position where investing is a means to an end, it is not a scorecard but a necessity. We need tools that help us to avoid volatility and periods where our impulsive emotions lead to us decision-making made because of fear and greed. Systems are a way to approach markets without emotion. The Carden Smart Wealth Indices provide an emotion-free view of markets and can dampen volatility when market activity flashes warning signs. Avoiding volatility may sometimes decrease gains, but it also saves one from losses as fear descends over markets.

While U.S. equity prices have been on the rise since February, the Carden Smart Hedge Index remains in cash since mid-December. There are many moving pieces when it comes to the direction of world markets across all asset classes. Now is a good time to take stock of portfolios and plan for the future. We would all like to be investors like Warren Buffett, the master. However, very few of us can buy a stake in a company at incredible terms because of our name, market the company by a mere investment or blessing and manipulate the system with the folksy, gee gosh darn wise cracks of this man. We investors should bow down to this master, and we should be smart enough to realize that his methods are one of a kind.

As of the publication date of this report, Carden Capital LLC , Carden Futures LLC and their affiliates (together the “Carden Companies”), may have positions in (whether long or short) and or options positions (whether long or short) in any of the securities, futures, or companies covered herein and may stand to realize gains in the event that the price of any security, future  or stock changes. Following publication of the report, the Carden Companies may transact in the securities, futures and derivatives of any company or market covered herein.


Neither I nor the Carden Companies have any obligation to continue offering reports regarding the securities, futures or companies covered herein. Reports are prepared as of the date(s) indicated and may become unreliable because of subsequent market or economic circumstances.


Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal.  This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.

Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities


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