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Why do investors and the media insist on comparing investment managers to Warren Buffett? It's really silly and actually unfair to compare the "average" fund manager to Warren Buffett. I'm qualified to state or comment on this because I have managed billions of dollars as an equity fund/strategy manager with a record of long-term outperformance. You see, most of the other 99% of us managers that try to beat our chosen benchmarks each year live day to day, marking to market how our "relative performance" is each day. Did we beat the benchmark today? By how much? Are we ahead YTD?

Buffett has long been immune from the requirement most investment managers have, which is to beat the benchmark this year. In the fund management industry, most portfolio managers will be relieved of their duties after two or three years of underperformance. The mentality has changed from being long-term focused to managing each year as a battle. Fund managers still pitch the long-term mantra when out trying to win business, but you don't get a long term to prove yourself.

Getting back to the point of comparing the average, active fund manager and how they work to research stocks to include in their investment portfolios vs. how Buffett does -- that's like comparing apples to oranges. Buffett has real-time industry information at his fingertips. Each of his Berkshire subsidiaries provides him with a real-time synopsis of what is happening with our economy and within sectors and industries. Below is a list of subsidiaries owned by Berkshire:

Company

Sector

Ownership %

Acquisition Date

GEICO

Insurance and Finance

100%

1996-08-26 (August 26, 1996)

Applied Underwriters

Insurance and Finance

100%

2004-05-22 (May 22, 2004)

General Re

Insurance and Finance

100%

1995-12-21 (December 21, 1995)

Kansas Bankers Surety Company

Insurance and Finance

100%

1998-04-10 (April 10, 1998)

National Indemnity Company

Insurance and Finance

100%

1967-03 (March, 1967) [3]

United States Liability Insurance Group

Insurance and Finance

75%

2000-08-08 [4]

Central States Indemnity Company

Insurance and Finance

100%

1982-10-20 (October 20, 1982)

Wesco Financial Corporation

Insurance and Finance

100%

1978 [5]

Dairy Queen

Food and Beverage

100%

1997-10-21 (October 21, 1997)

The Pampered Chef

Food and Beverage

100%

2002-09-23 (September 23, 2002)

See's Candies

Food and Beverage

100%

1972-01-03 (January 3, 1972)

H. J. Heinz Company

Food and Beverage

50%

2013-02-14 (February 14, 2013) [6]

Fechheimer Brothers Company

Clothing

100%

1986

Fruit of the Loom

Clothing

100%

2002-04-30 (April 30, 2002)

Garan Children's Clothing

Clothing

100%

2002-09-04 (September 4, 2002)

H.H. Brown Shoe Group

Clothing

100%

1991-07-01 (July 1, 1991)

Justin Brands

Clothing

100%

2000-08-01 (August 1, 2000)

CORT Business Services

Furniture Related

100%

2000-01-14 (January 14, 2000)

Jordan's Furniture

Furniture Related

100%

1999-10-11 (October 11, 1999)

Larson-Juhl

Furniture Related

100%

2001-12-17 (December 17, 2001)

Nebraska Furniture Mart

Furniture Related

80%

1983

RC Willey Home Furnishings

Furniture Related

1995 [7]

Star Furniture

Furniture Related

100%

1997-07-14 (July 14, 1997)

Acme Brick Company

Materials and Construction

100%

2000-08-01 (August 1, 2000)

Benjamin Moore & Co.

Materials and Construction

100%

2001-01-01 (January 1, 2001)

Clayton Homes

Materials and Construction

100%

2007-05-10 (May 10, 2007)

ISCAR Metalworking

Materials and Construction

100%

2006-05-08 (May 8, 2006)

Johns Manville

Materials and Construction

100%

2001-02-27 (February 27, 2001)

MiTek

Materials and Construction

90%

2001-06-12 [8]

Precision Steel Warehouse, Inc.

Materials and Construction

1979 [9]

Shaw Industries

Materials and Construction

2002-01-21 [10]

The Buffalo News

Media

100%

1977-04 (April, 1977)

Business Wire

Media

100%

2006-03-01 (March 1, 2006)

Omaha World-Herald

Media

100%

2011-12 (December 2011) [11]

XTRA Corporation

Logistics

100%

2001-09-20 (September 20, 2001)

McLane Company

Logistics

100%

2003-05-23 (May 23, 2003)

Ben Bridge Jewelers

Luxury Items

100%

2000-07-18 (July 18, 2000)

Borsheim's Fine Jewelry

Luxury Items

100%

1989

Helzberg Diamonds

Luxury Items

100%

1995

Scott Fetzer Companies

Other

100%

1985

MidAmerican Energy Holdings Company

Utilities

89.8%

1999-03-26 (March 26, 1999)

NetJets

Business Services

100%

1998

NetJets Europe

Business Services

100%

1998

FlightSafety

Business Services

100%

1997

CTB Inc.

Capital Goods

100%

2002

Burlington Northern Santa Fe Corp.

Railroads and Logistics

100%

2010-02-12 (February 12, 2010)

Blue Chip Stamps

Other

100%

1983-03 (March 1983)

SE Homes

Materials and Construction

100%

2007

Cavalier Homes

Materials and Construction

100%

2008

Lubrizol

Chemicals

100%

2011 (September 16, 2011)

BoatUS

Insurance

Brooks Sports

Apparel

100%

2006 (August 2, 2006)

Forest River (company)

Materials and Construction

100%

2005 (August 31, 2005)

At any given moment, Buffett has any and all information these companies have at his disposal to make good investment choices. If he wants to know some things about the consumer and discretionary spending and whether or not, say, McDonald's (NYSE:MCD) is a good investment, do you think his holdings and daily traffic trends of Berkshire's Dairy Queen are relevant? Look through the list above -- he has, relative to the other 99% of us, perfect information to make decisions on companies. Trends at Benjamin Moore probably provide some great insights into consumer spending and the housing markets, for instance.

I get my insights listening to managed, quarterly conference calls with edited scripts followed closely by C-level executives who keep to the script. We supplant this with field research by visiting stores and seeing customers around the country/world in order to try and infer trends and market share shifts. Store-level managers are increasingly less likely to speak with analysts and portfolio managers because corporations are fearful of violating securities laws. So the chasm between the information we (the 99%) have and what Buffett has only widened. I won't go into the fact that Buffett serves or has served on various large corporate boards that only help him confirm the multitude of data he gets with the Berkshire subsidiaries.

How Should Investors Compete?

The only way to compete effectively with Buffett is for other investment companies to purchase large stakes or outright 100% ownership of companies they like, so they too can benefit from the "better" information Buffett and Berkshire have access to. The bevy of recent insider trading cases have illustrated examples where people paid for information about companies so that they could make short-term investment decisions based on it. Buffett buys companies to get access to their assets, business and information, which undeniably helps his understanding of the economy, business trends, and market share gains. He does not, however, engage in trading for short-term profits -- he invests for the long term.

All the insider cases have short-term buys and sells-short-term profits. I think if other investment companies competed with Berkshire for assets like Heinz, etc., then the mentality would shift away from short-term investing (and all the bad things associated with it) and allow investment managers to focus on purchasing great longer-term assets and performance. The computerization and instant access to clients' accounts and performance has only created more of a focus on short-term investment performance. This had led to incentives within the industry that reward the movement of assets. For example, most institutional investment management firms reward their sales people with "trailers" of, say, 0.0015%, 0.0010%, and 0.0005%, respectively, over the three subsequent years if they "win" an account and assets come to a firm. How about incentives that reward people if assets stay five or 10 years? I have been a professional investor for over 20 years and have never heard of such a thing, but the "greatest investor of all time" does this.

As long as the 99% of us battle it out each year, worrying about being 200 basis points ahead of or behind the benchmark compared to each other, making very good compensation, Buffett will continue to laugh all the way to his bank.

Source: Why Portfolio Managers Will Never Beat Warren Buffett Or Berkshire, But Are Happy Trying