Back in 2005, after a visit to Warren Buffett’s shareholders’ meeting, I wrote an article in which I was mildly critical. I called the event “boring and irritating”.
I said I loathed the folksy atmosphere Buffett and his sidekick Charlie Munger created. I just didn’t buy into the whole plain-speaking, home town-living, wise-cracking, coke-swigging PR picture – or the pressure to buy Buffett products (jewellery, furniture, steak…).
Overall, I found my whole visit to Nebraska very trying. So much so that I’m still not over the question-and-answer session. Why? Partly because there were no questions. Just praise: “Mr Buffett, thanks for your wisdom”, “Mr Buffett, thank you for doing so much for all of us”. And praise phrased as questions: “Mr Buffett, can you tell us what it is that makes you so uniquely successful?”
It also irks me that once a year a child gets a question. In 2005, this was asked by a high-voiced little girl in the form of an utterly meaningless poem: “To come here, we had to fly, do you think Petro China is at an all-time high? For my future job, can I be a taster of Sees Candy? My sister and I will work for free.” Most attendees sat happily through this nonsense. The only other UK writer there sprinted for the bar. I followed. Then I headlined the piece on my trip “Buffett is a terrible bore”.
I got in a lot of trouble for not liking Buffett back in 2005. But I have a feeling that if I wrote the same piece today, I’d get rather less hate mail.
These days, Buffett isn’t the untarnished guru he once was. In mid-crisis, he made a huge gain from a well-timed investment in Goldman Sachs. Not everyone liked that. Then, last year, he wrote an odd open letter to the US government, which pretty much absolved it of any blame for the crisis and went on give it “great credit” for its actions in “this extraordinary emergency”.
PFP’s Tim Price was horrified. He noted that the “self-congratulatory tone” was not only premature but neglected the “unaddressed bigger picture: that the US government had allowed its financial sector to run amok, and then raided the wallets of the rest of the population to bail the banks out”. It showed, said Price, that the seeming hero of the ordinary man was actually so hung up on Wall Street he was “utterly unconcerned about the travails of the poor souls resident on Main Street, USA”.
Now, a few months on, comes the David Sokol scandal: last week, the chairman of NetJets, one of Buffett’s flagship investments, resigned after buying shares in a chemical company (and netting $3m) just before Berkshire Hathaway took it over. This wasn’t, as Buffett points out, “unlawful” but it sure doesn’t fit with the all-in-it-together image that Berkshire Hathaway cultivates. Nor, for that matter, does the fact that Munger’s family owned 3% of another company Berkshire took over in 2008. So much for folksy.
Still, unsavoury as all this is, none of it should take away from Buffett’s investing record. If you’d invested $20.50 in Berkshire at the end of 1967, you could have sold your stake for $141,600 in 2007. That kind of thing doesn’t happen often in the world of investment. And while, certainly in recent years, there has been more to Buffett’s success than straightforward value investing, his early record should remind us that if you want to invest well for the long term you need only ever ask yourself three questions about an investment. Is it cheap? Is it cheap for a reason? If so, might that reason change? If you get “yes, no” or “yes, yes, yes”, you’re in business. If you are a fund manager, knowing this doesn’t always do you many favours (you perform badly in bubbles) but if you are investing for yourself, proper value investing remains the best way to preserve the value of your capital.
With that in mind, if I had to invest money now I would probably start with the Edinburgh Investment Trust: manager Neil Woodford is very good at finding the “yes and the no” in the investment world.
Otherwise – and I know not many are going to agree with me – I am tempted by Alliance Trust as a “yes, yes, probably”. No one much likes it thanks to the fact that its performance hasn’t been good and because it refuses to contemplate a discount control mechanism (DCM) which would raise the share price.
But it trades on a 17% discount to the net value of its assets. And while it holds too many financials and has an oddly unfocused portfolio, if you look at its top ten holdings you’ll find few of them match Woodford’s. So it isn’t all bad.
The management is also under pressure to sort things out: think long-term investors selling out and a dedicated DCM pressure group. I’m going up to see Alliance in a few weeks’ time – I’ll let you know if I’m changing “yes, yes, probably” to “yes, yes, yes”.