Geoff Gannon

On Investing Like Billionaires: The Cases of Kerkorian and Buffett

Berkshire has done special deals, because Berkshire has the cash to do such deals. Most of the positions Berkshire has (and that are reported in the press) are common stock purchases. Berkshire's best known investments were, with the exception of Gillette, neither special nor complicated – they simply consisted of buying stock in a public company. In the case of Gillette, Buffett probably made a mistake by agreeing to a special deal when he could have simply bought the common stock. An individual investor who tried to imitate Buffett by buying Gillette common would have done just fine.

Buffett's investment record at Berkshire is based on the common stock purchases far more than any special deals – although Berkshire has made a lot of them. If you compare Berkshire's record on special deals with its record on common stock purchases in the market, you'll see that Buffett's record is not the result of benefits resulting from such special deals – because, quite frankly, he's accomplished a lot more at Berkshire in the open market than in negotiated transactions with public companies. In fact, his "special deals" record in the 80s in this regard was actually quite poor when compared to his common stock purchases.

Of course, in all of this, I'm excluding the deals with private companies as well as the acquisition of public companies. However, those activities should be completely separate in everyone's minds. Berkshire is not a closed end fund. It's a conglomerate with plenty of operating businesses, several major insurers, and investments that are made with the cash from the company's insurance operations as well as the free cash flow generated by its many subsidiaries.

Stressing the fact that Buffett's record of compounding book value at Berkshire is not an investment record (alone) is perfectly correct. Stressing the importance of "special deals" in Berkshire's investments in public companies is misleading.

That isn't how Berkshire has made most of its money – and the portfolio that's reported in the press consists almost entirely of positions that resulted from common stock purchases in the market rather than special deals.