<<– Continued from Part 1 (Where’s Waldo? The illusion of superior professional mutual fund manager performance.)
Instead of highlighting dozens or even hundreds of perennially superior mutual fund money managers, the media conversation has become a repetitive chant about Warren Buffett.
While highly successful and very worthy of respect, it is interesting that the “Sage of Omaha” gets so much press as a successful money manager. Warren Buffett is not a traditional money manager, because he tends not to buy small positions across a large number of securities like those that a mutual fund portfolio manager does. Instead, he often buys significant minority and controlling interests in firms and directly influences their management and thus the outcome. While managers of open investment fund take in investor deposits continuously, it has been a very very long time since Berkshire Hathaway Inc. has tapped the public markets for equity capital!
Concerning Mr. Buffett’s Berkshire Hathaway conglomerate, you may find some studies of its equity holdings, as if it were managed as an entirely independent equity mutual fund. Yes, the numbers do seem to indicate that Warren Buffett and his key lieutenants have demonstrated superior stock picking skill over time. Warren Buffett has generated so much cash over the long-term that he could not just keep it all in cash under the Berkshire mattress.
Back in 2005, The Skilled Investor took an overall look of the enterprises and investment assets under Warren Buffett’s control. As of mid-2005, both Berkshire Hathaway’s cash positions and its equity positions were close to $50 billion each. In addition to that, it held substantial positions in bonds and wholly owned businesses. The overall percentage distributions were about 30% cash, 16% bonds, 29% publicly traded equities, and 25% in businesses owned outright. The equity portion was invested in about 30 firms with 10 accounting for more than 90% of the equity valuation.
Within the rules of law and its prospectus, which mutual fund would be allowed to play Warren Buffett’s game? The answer is none.
Shrewdly buy companies at bargain prices … fix them up and manage them for the long run … let them spin off barrels of cash … invest some of the cash in equities and bonds … buy more companies and fix them up … hold on to a huge amount of cash under the mattress for very long periods because bargains are cyclical and [...]