Warren Worship

Includes: BRK.A, GS
by: Mike Steinhardt

Worshiping Warren Buffett seems to be a pastime of the financial media and all his cult or disciples or whatever you call them.  Personally, I am sick and tired of hearing about how many Cherry Cokes he drinks or cheeseburgers he eats or what he thinks about politicians or bailouts or just about anything else that CNBC wants to fill its airtime with.  Oh my!  You cannot criticize Warren Buffett!  Who are you to criticize Warren Buffett?  He is the greatest investor of all time!

First of all, I have not yet criticized Warren Buffett.  I am criticizing the infatuation of others and the idol worshiping of Warren.  Those are two different things.

On this blog over the years, I have generally said great things about Buffett, not that it should matter to him or to you.  Click here to read all my articles mentioning the words “Warren Buffett”.  I find him to be a very entertaining and funny guy who is obviously smart and experienced.  I find his commitment to humanity and charitable causes to be worthy of extreme admiration - note that I am equally impressed by someone who only has a few dollars to his name and gives some of it to someone less fortunate.  I find Warren’s investing principles to be very insightful.  But if you read through my past comments on him, you’ll find a common theme.  I want people to be their own investor, not just copy Buffett.  One more time….you are not Warren.  You don’t have his capital, you do not have his cost of capital, his negotiating power or any of that stuff.  Chasing his every 13-F filing or announcement of an actual investment like Goldman or buying into the numerous abusive and false rumors that Buffett is investing in a company (HOV, MBI/ABK, AIG to name a few) that fly around almost every time we have a crisis is crazy.  If you don’t believe me, maybe you’ll believe this quote attributed to him:

“You have to think for yourself. It always amazes me how high-IQ people mindlessly imitate. I never get good ideas talking to other people.”

As for this Goldman investment, it is already being spun as some kind of all-clear blessing on Goldman, the financial sector, the stock market, the TARP Bailout, and just about everything else that appears to be in trouble.  After all, Buffett is the greatest investor of all time they say.  He would never make this investment if he didn’t “know” that the TARP was a done deal they say.   He sees value where the rest of us don’t and just insert any of his folksy sayings that may fit in this case about buying when others are selling.

As for me, I see this investment in Goldman to be an investment in Goldman.  One that only Buffett could negotiate.  Goldman paying 10% interest for the “perpetual preferred” stake and discount on Buffett’s common stock warrants is quite expensive.  All the people that might rush to buy GS common tomorrow to “mindlessly imitate” Warren will not come anywhere close to what he paid.  Good luck with that.

Take a recent example of a new Berkshire position. If you followed Warren into NRG after the 6/30/08 13-F when the stock was trading about $43/share, you might not be so happy today at $27.72.  Unless of course you can rationalize that you are a long term investor just like Warren and you don’t mind losing 35% in a few months.  If not, maybe drinking a Cherry Coke will help you feel better.   Hey, we all have bad picks so maybe it feels good to be just like Warren in a bad kind of way.  Or maybe you can point to JNJ or his railroad picks and say that patience will bring you great rewards.

I think Buffett has done a great job buying operating entities to fold into Berkshire and the BRK/A appreciation over his tenure is obviously phenomenal.  Scooping up CEG last week is a great example and I am confident he will make that work within his existing utility operations.  As for the whole “Worshiping Warren” concept for being the greatest stock investor of all time….relating to the 40 or so stocks in Berkshire’s portfolio, have you looked at their performance lately?  Be objective, how many of his stocks have had a gain during 2008?  I know it’s been a rough year for the markets but is this worthy of worship?  Long term you say?   Go ahead and look at all the trades as far back as you want (include dividends), then make up your own mind whether the stock portfolio performance and diversification we are all supposed to worship is really representative of the greatest investor of all time.  I am not saying it is or it isn’t, just decide for yourself based upon facts and not the hype.