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Is Buffett The Greatest Investor Of All Time?

|Includes: Berkshire Hathaway A (BRK.A), CSCO, DIS, NYX, ORCL

Warren Buffett has a huge fan base and is often spoken of as the greatest investor ever. But is he really the greatest investor of all time?

I have the utmost respect for Mr. Buffett and he has had more influence on my life than any other person besides my parents. He is undoubtedly a phenomenal investor and arguably the best of the last 50 years, but to say he is unequivocally the best in the history of the world is unfairly ignoring other legendary investors such as Andrew Carnegie, Jay Gould, John Jacob Astor, and many others.

Greatest Investors Alive

If you perform a Google or Bing search for lists of "greatest investors of all time" Warren Buffett is almost always at the top of the list. However, you will notice a huge bias in these lists: all are from the late 20th Century and based in the U.S.

One article high on search engines is titled "World's 10 Greatest Investors". All ten were from the U.S. except Hungary-born George Soros who has been a U.S. citizen for 50 years. Li Ka-Shing was not on the list, even though he is a self-made billionaire worth $22 billion and George Soros is worth $14.5 billion. Why is Li Ka-Shing not mentioned? Even more importantly, why is he not studied by more investors?

Carlos Slim is the richest person in the world and ten years younger than Buffett. Carlos Slim also has a strong case for being the "greatest investor alive".

Great Investment Thinker vs. Great Investor

Philip Fisher and Benjamin Graham are often on the lists of greatest investors of all time. Both were definitely two of the greatest investment minds ever and made significant contributions to investment thought in the 20th Century. They also were very good investors. However, calling them the greatest investors ever in practice may be too generous.

John Bogle made significant contributions to investing as well with his popularization of low-cost index funds. Harry Markowitz made contributions to investment thought with his work on Modern Portfolio Theory. However, including them on a list of greatest investors in practice is just plain inaccurate.

Warren Buffett is a rare case of being one of the greatest investment minds ever and one of the greatest investors in practice.

Comparing Investors throughout History

Comparing investors is not as easy as designating the winner the person with the most money or highest return. Investors come from different time periods and countries with different circumstances. They also work with different quantities of money (e.g. it's harder to invest $10 billion than $10 million) and work for different entities (hedge funds, mutual funds, holding company, etc.). For example, David Swensen runs Yale's $20 billion endowment fund and has achieved remarkable success. If he had a hedge fund instead of working for Yale, he would be a billionaire.

Benjamin Graham had an investment partnership that operated during the Great Depression. Evaluating his success at investing versus someone who operated from 1980 to 1999 cannot be achieved by simply measuring who had a higher average annual return. Earning 15% annual returns from 1980 through 1999 would have been mediocre and could have been achieved by investing in an S&P 500 index fund. Earning 15% annual returns from 1929 to 1949 would qualify you as one of the best investors of the 20th Century.

Even if you account for how much an investor beats the market you still have to consider other factors within different time periods, such as information and opportunity. In the 1930s news was not instantaneously available to investors via computers and television. Also, back then you couldn't just click on the "Investor Relations" link on a company's website to read the 10-K; you had to find a hard copy. When you did get ahold of a hard copy the financial documents were much less transparent and thorough.

The NY Stock Exchange (NYSE:NYX) was formed in 1792 and there were very few companies listed on the exchange; therefore, investing was done mostly through private businesses prior to that time. Finding "excess returns" during this period is impossible. If we had to compare Buffett to someone such as Stephen Girard we have little information to go on. One of the few pieces of information we do know is that Girard accumulated $7.5 million in the early 1800s, which today would be about $97 billion (measured as wealth relative to GNP). Buffett today has a net worth of about $50 billion.

Greatest Investors in History

While it is hard to unequivocally call Buffett the "greatest investor today" because of Carlos Slim and other multi-billionaire investors such as James Simons, John Paulson, and George Soros, it is definitely impossible to call him the greatest in history.

Andrew Mellon and Jay Gould were both worth more than Buffett (in terms of wealth relative to GNP). Jay Gould would be worth approximately $79 billion and Andrew Mellon would be worth $57 billion (Andrew Mellon's brother Richard would also be worth $57 billion). Jay Gould may have earned his money in controversial ways, but if investing is "expending money for the purpose of profit" then Jay Gould was one of the best. Andrew Mellon was brilliant at operating companies from an early age, in addition to being a brilliant investor.

Buffett's appeal to the average investor is his success at buying publicly traded stocks, his wit and sense of humor, and his sensible investment philosophy. He appeals to the media for the same reasons. He is constantly interviewed on television, there are dozens of books about him, and he shares his thoughts in his shareholder letters and annual meetings. President Obama quotes him, one of his closest friends is Bill Gates, he is the third richest man in the world, and some of his businesses are household names. He is a celebrity. He is everyone's favorite investor.

No one has ever heard of James Simons because the average investor cannot invest like him and no one knows what he is buying or selling.

What is an Investor?

Warren Buffett has 99% of his net worth in one company. Larry Ellison of Oracle (NYSE:ORCL) and John Chambers of Cisco (NASDAQ:CSCO) also have almost their entire net worth in one stock. To say Warren Buffett is an investor but Ellison and Chambers are not would be to change the definition of an investor.

One might argue that Berkshire (NYSE:BRK.A) is a company with dozens of other companies so Buffett really is diversified even though 99% of his money is in one stock. The problem with that argument is that almost every large company is made of different lines of business and companies. Oracle and Cisco have both bought dozens of other companies. Oracle gets the bulk of its revenue from software, Cisco from networking and Berkshire from insurance. In fact, most of the fortunes on the Forbes 400 list and most of the great fortunes throughout history were built through holding a very large stake in one company.

Allocating money outside of a company is also not the only form of investment. Using free cash flow to expand operations is definitely an investment. John D. Rockefeller and Standard Oil were phenomenal capital allocators. Standard Oil would buy out competitors or open up near them, undersell them, and drive them out of business. Investing in competitors or to destroy competitors was a brilliant strategy that led to Standard Oil becoming a monopoly. One could argue John D. Rockefeller was the greatest investor ever. His net worth today would be roughly $225 billion.

Investors are often thought of as stock pickers, but publicly traded stocks are only one form of investment. Private businesses are certainly investments. Bill Gross is not a stock picker but is one of the best investors today because of his talent for investing in bonds. Putting money into apartments, office buildings, shopping malls, condos, raw land, and houses are all forms of investment. John Jacob Astor became wealthy from his fur business and expanded his wealth by investing in New York City real estate. He sold his entire fur business and invested all of his money into Manhattan in the 1830s right when Manhattan was starting to boom. That was one of the most brilliant investments in U.S. history.

Some of the best investment decisions in the last 10 years came from Mark Zuckerberg's holdings in Facebook. Sure, he didn't put much money into it, but his ability to not give up too much ownership to other early partners and investors, raise additional capital without diluting ownership, and never sell out were all brilliant investment decisions. Steve Jobs' investment in Pixar was definitely one of the best investments in the last 25 years. He bought Pixar for $10 million in 1986 and sold it to Disney (NYSE:DIS) in 2006. Jobs received 138 million shares of Disney in the deal, worth about $5.5 billion today.

Many people limit themselves by thinking investing is just picking stocks. The greatest investors in the history of the world all owned control of companies and were involved in management--including Buffett.

The Wealthiest People in U.S. History

The book "The Wealthy 100: From Benjamin Franklin to Bill Gates" by Michael Klepper and Robert Gunther list's the wealthiest 100 people in U.S. history. The authors use wealth relative to GNP at the time to rank people. Nearly everyone on this list should be considered an investor-the exceptions being those who inherited most of their wealth or married it. Here is the complete list (www.getrichslowly.org/blog/2006/07/29/th.../)

Below is an updated version of the top 21:

Rank Name Born Died Wealth Ratio Wealth
in 1000s (Wealth: Today's
  GNP) Dollars (Billions)
1 John D. Rockefeller 1839 1937 $1,400,000 65 225
2 Cornelius Vanderbilt 1794 1877 $105,000 87 168
3 John Jacob Astor 1763 1848 $20,000 107 136
4 Stephen Girard 1750 1831 $7,500 150 97
5 Andrew Carnegie 1835 1919 $475,000 166 88
6 A.T. Stewart 1803 1876 $50,000 178 82
7 Frederick Weyerhaeuser 1834 1914 $200,000 182 80
8 Jay Gould 1836 1892 $77,000 185 79
9 Stephen Van Rensselaer 1764 1839 $10,000 194 75
10 Marshall Field 1834 1906 $140,000 205 71
11 Henry Ford 1863 1947 $1,000,000 231 63
12 Andrew W. Mellon 1855 1937 $350,000 258 57
13 Richard B. Mellon 1858 1933 $350,000 258 57
14 Bill Gates 1955   $56,000,000 261 56
15 Sam M. Walton 1918 1992 $22,000,000 275 53
16 James G. Fair 1831 1894 $45,000 280 52
17 William Weightman 1813 1904 $80,000 286 51
18 Moses Taylor 1806 1882 $40,000 286 51
19 Russell Sage 1816 1906 $100,000 287 51
20 John I. Blair 1802 1899 $60,000 289 51
21 Warren Buffett 1930   $50,000,000 292 50

Who Is The Greatest?

You can decide who you think is the greatest. John D. Rockefeller has the strongest case. If he didn't get out of the produce business and invest into oil, the name Rockefeller would not be synonymous with great wealth today.

The Rothschilds were definitely brilliant investors and the wealthiest family in history. Andrew Carnegie was a brilliant investor and one of the wealthiest people to ever live.

Warren Buffett is my favorite investor and one of the most successful investor's in the history of the world-but a strong case can be made that the many other investors who achieved greater wealth and results should be ranked higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.