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Tom Au, CFA
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In the early 1990s, during the middle of a secular bull market, I began work on "A Modern Approach To Graham and Dodd Investing," that was not particularly suited for the decade of the 1990s, but was ideally suited for the following "Lost Decade" of the 2000s.
My book:
A Modern Approach to Graham and Dodd Investing
  • A Corporation Is a Company That Has Lost Its Founding Spirit 4 comments
    May 5, 2009 10:16 AM

    Berkshire Hathaway (in is current form) officially became a "corporation" this weekend. That was signalled by its (current-stage) founder, Warren Buffett, at the most recent annual meeting--even though he is still in charge.

    It has been said that a corporation is a company that probably would not hire its founder. At some point,  Henry Ford (regarded as an innovative eccent... would not have been welcome at Ford Motor Company. Yahoo became a  corporation recently: It fired Jerry Yang, former "co-Chief Yahoo," and one of its two founders.

    Back to Berkshire. A now eighty-something value investment manager once told a story of being pleased at buying a stock he thought was worth $50 a share for $30 a share. But the twenty-something ... next to him pulled in most of his position at $26. To show his astuteness, it never broke $25. "The youngster always seemed to get something for three or four points less than me," he complained. That "kid" was Warren Buffett, now seventy-nine, who went on to work for himself. Shortly before he turned forty, Buffett (correctly) called a market top, sold most of the stocks held by his hedge fund, and distributed the cash. to investors. 

    Thirty nine years later, Mr. Buffett said that this was something he did NOT want his four prospective successors to do (even though the "times, e.g. a forty-year cycle, probably call for it).  No wonder we're out of the running for the job. A younger WARREN BUFFETT couldn't get hired by the current one. (We confess to being no match for the younger Buffett, but believe ourselves possibly competitive with the current one.)

    Now, a large corporation typically employs a large number of people. It may produce goods and services of great value to society. It may even train leaders for other companies, or other fields of endeavor. What it does not usually do is to innovate, or produce people that do. And when that happens, it is time to "move on," intellectually. Even though I own the stock (both A and B shares), I'll probably get progressively fewer investment ideas from it.

    A "founder" company can last only so long as such. Bill Gates (a founder) signalled as much about Microsoft by handing over the company to Steve Ballmer (a mananger). There hasn't yet been a similar handover at Berkshire. But it has apparently nevertheless made a similar transition.

    Long Berkshire Hathaway A and B shares; a little Microsoft as an "observer" position.

     

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  • Norman Tweed
    , contributor
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    Thanks Tom for this illumination of companies with great founders transitioning to corporations. There is much truth in what you have observed. I have just finished reading a history on Buffett by Carol Loomis "Tap Dancing to Work" (mostly her Forbes Articles) and find him to be a savvy investor.
    11 Mar 2013, 02:43 PM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    Author’s reply » The irony is that today's Buffett seems to be a shadow of his former SELF.
    11 Mar 2013, 04:23 PM Reply Like
  • Norman Tweed
    , contributor
    Comments (7355) | Send Message
     
    Tom--I think that has to do with age. In addition, the world has changed from his 20th century world and there is a lot more enabled competition, due to the Internet.
    12 Mar 2013, 03:26 AM Reply Like
  • Tom Au, CFA
    , contributor
    Comments (6775) | Send Message
     
    Author’s reply » My own parents once said to me, "You're still the "kid" we remember growing up in the 1960s. The difference between you and us is that we've changed since then, and you haven'.t"
    12 Mar 2013, 09:10 AM Reply Like
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