Thinking About the Next Warren Buffett
“We get this question a lot from the enterprising young. It’s a very intelligent question: you look at some old guy who is rich and you ask, ‘How can I become like you, except faster?’” Charlie Munger
It’s natural to see someone wildly successful and imagine yourself in their shoes. At least that’s what happened to me when I first read about Warren Buffett as a teenager. Buffett and Charlie Munger are wealthy, wise, and widely admired. They love what they do and spend their days learning, solving interesting puzzles, and painting their canvas at Berkshire Hathaway. They are surrounded by people they like, trust, and enjoy working with. They even have their own cult-like community of students and admirers.
Of course I asked myself, ‘Well, how can I be the next Warren Buffett?’ But like most people, I was too self aware to say it out loud. And over time I forgot about it.
A couple of months ago, I heard someone ask it at the 1997 annual meeting:
“If someone were to form a company doing what you did 30 or 40 years ago, what is your suggestion to them?”
Buffett: “First thing we’d suggest is they send us a royalty.” (Laughter)
Munger: “That’s a question I ordinarily duck. … I always believe in getting the fundamental mental tools in place. … I argue for sound thinking. But the exact specific techniques of turning yourself into another Warren Buffett, I leave to you.”
What a bummer, Charlie. But once the question was back on my mind, it refused to let me go. It felt like a Rubik’s cube each new generation of investors has to solve, worthy of an open-ended exploration. How valuable would it be to know the answer?
Would you like to make 167,000x your money?
How much money would Buffett’s first outside investor have made? I was surprised I couldn’t find this calculation all over the web. The world’s most famous investment track record and nobody has done the math? (Someone on Reddit helpfully pointed out that Lowenstein did a similar calculation in American Capitalist — but as of 1995.) So I put together my own back of the envelope calculation. To be clear: I know this is not the correct number. If you’ve done the math or have seen a detailed calculation, please let me know.
First off, Buffett’s investment partnership absolutely crushed the market from 1957-1969 (really multiple partnerships which he ended up consolidating):
By 1967 however, Buffett felt “out of step with present conditions” (read: the roaring bull market). And by 1969, he decided to shut down the partnership. Per the Snowball, he distributed a combination of cash and securities, including stock in Berkshire Hathaway and Diversified Retailing (which was later merged into Berkshire). For simplicity’s sake, I assumed that an investor in the partnership swapped their entire stake for Berkshire stock at the end of 1969.
Berkshire’s performance, too, has been ridiculous:
Berkshire’s track record from 1970-2021 is a staggering 19.5% IRR or 10,457x the invested capital (slightly lower than the 20.1% IRR stated in the table because that calculation starts in 1965, when Buffett assumed control).
The combined track record (net of partnership fees) is 167,578x the invested capital or a 20.3% IRR.
Which begs the question: why would you even want to be the next Warren Buffett? You could just bet on them. You could make a fortune without having to do any of the work. All it takes is one great decision and a lot of patience — what Munger refers to as ‘sit on your ass’ investing.
No wonder the media has been obsessed with figuring this out. Every few years, a rising investment talent is handed the crown. This typically turns out to be a kiss of death, at least a short-term peak in performance, and has become known as the ‘Buffett curse’.
What to look for?
While Buffett and Munger skipped the question in 1997, others have tried to tackle it from various angles.
Mark Sellers wrote an excellent piece titled: So You Want To Be The Next Warren Buffett? How is Your Writing? He minced no words:
“I'm not here to teach you how to be a great investor. On the contrary, I'm here to tell you why very few of you can ever hope to achieve this status.”
Sellers focused on a list of “hard-wired” traits, arguing that “by the time you’re a teenager, if you don’t already have it, you can’t get it. By the time your brain is developed, you either have the ability to run circles around other investors or you don’t.”
These traits included:
“The ability to buy stocks while others are panicking and sell stocks while others are euphoric.
A great investor is obsessive about playing the game and wanting to win. These people don’t just enjoy investing; they live it.
The willingness to learn from past mistakes.
An inherent sense of risk based on common sense.
Confidence in their own convictions, even when facing criticism.
The most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process.”
Also this one which made me feel a lot better:
“I believe you need to be a good writer. … If you can’t write clearly, it is my opinion that you don’t think very clearly. And if you don’t think clearly, you’re in trouble.”
If that list felt like a challenge, how about we invert the question instead? Morgan Housel argued in The Psychology of Money that figuring out how Buffett “found the best companies, the cheapest stocks, the best managers,” is hard. Instead, he pointed out what Buffett didn’t do:
“He didn’t get carried away with debt.
He didn’t panic and sell during the 14 recessions he’s lived through.
He didn’t sully his business reputation.
He didn’t attach himself to one strategy, one world view, or one passing trend.
He didn’t rely on others’ money (managing investments through a public company meant investors couldn’t withdraw their capital).
He didn’t burn himself out and quit or retire.
He survived. Survival gave him longevity.”
I believe both approaches are necessary to understand Buffett’s success. There are lessons in his great decisions, his mistakes, and even in the pitfalls he managed to avoid.
It is also instructive to study the conditions under which he operated. They provide the necessary context and let us evaluate which methods and ideas are still relevant today. In an excellent episode of Business Breakdowns, Chris Bloomstran discussed Berkshire’s success and called it a “fluke of time”:
“It's a fluke of the alignment of discipline and intelligent capital allocation that nobody else had. The fluke of having [insurance] underwriting discipline that nobody else exhibited. … The advantage is they did it 55 years ago. And you can't do it again today. You just don't have the wild disparities in terms of the ability to pick stocks as cheaply as they were.”
Will the real Warren Buffett please stand up?
Shareholder: “Do you ever get tired of being Warren Buffett? If you could come back again, would you want to be Warren Buffett?”
Buffett: “You see a lot of the publicity here for a couple of days around the time of the meeting. But life goes on in a very normal way. And I have fun every day of my life. Because, you know, I get to do what I want to do. And I get to do it with people I like and admire and trust. And it doesn’t get any better than that.”
The more I read about Buffett, the more overwhelmed I feel. The scale of his success and the sheer volume of material by and about him seems like too much to tackle. It creates a temptation to boil down the many layers and lessons into one convenient number: the track record.
Then I remind myself of this quote in which Buffett described the essence of his and Munger’s jobs:
“We have to identify and keep good managers interested after we’ve figured out who they are. The second thing we do is allocate capital. And aside from that, we play bridge.”
Notice the balance. Capital and people. Reading and relationships. Buffett is well aware that financial capital is not the only asset that compounds. His entire life he has been compounding social capital: relationships, trust, reputation.
You can’t tap dance to work if you don’t like who you’ll meet at the office. You can’t lead an enterprise with 372,000 employees based on “decentralization almost to the point of abdication” if you can’t completely trust your managers.
We have to resist the temptation to view him through just one lens. It creates a caricature. It’s not helpful. It’s worth asking: How many layers are there to Buffett’s success?
Followed his passion.
Great investor with an enviable long-term track record.
Built a company in his image. Keeps painting his own canvas every day.
Reached the top of the Forbes rich list and became an admired icon of the business world (rather than a reviled symbol of the system).
Shareholders got wealthy alongside him.
Created a unique and possibly lasting culture.
Used his platform to educate generations of investors and business leaders.
And then there’s the Giving Pledge. Buffett turned into more than a philanthropist: he became a catalyst for others to take action.
Asking a better question
In The Big Short, Michael Lewis described how Michael Burry studied Buffett and found that the more he learned, “the less he thought Buffett could be copied.” Rather, the lesson from Buffett’s life was that “to succeed in a spectacular fashion you had to be spectacularly unusual.”
“If you are going to be a great investor, you have to fit the style to who you are. At one point I recognized that Warren Buffett, though he had every advantage in learning from Ben Graham, did not copy Ben Graham, but rather set out on his own path, and ran money his way, by his own rules.” Michael Burry
Munger has said as much, explaining that Buffett, “the former protégé,” surpassing Ben Graham was “a natural outcome.”
“It’s what Newton said. He said, ‘If I’ve seen a little farther than other men, it’s by standing on the shoulder of giants.’”
Speaking of giants, during the 2019 annual meeting Munger was in a chattier mood. He shared one of my favorite little stories:
Munger: “Young lawyers frequently come to me and say, ‘How can I quit practicing law and become a billionaire instead?’ I say, well, it reminds me of a story they tell about Mozart.
A young man came to him, and he said, ‘I want to compose symphonies. I want to talk to you about that.’ Mozart said, ‘How old are you?’ ‘Twenty-two.’
And Mozart said, ‘You’re too young to do symphonies.’ And the guy says, ‘But you were writing symphonies when you were ten years old.’
He says, ‘Yes, but I wasn’t running around asking other people how to do it.’”
This is a key point. The next Warren Buffett, whoever they are, will not be afraid to ask the question that is on everyone’s mind. But they will also not be sitting in the audience waiting to be handed enlightenment. They will not be content to adopt their teachers’ methods and ideas. They will, to quote Bruce Lee, “reject what is useless” and add what is uniquely their own.
They will be on a quest to surpass the masters of prior generations. And they will be a joy to discover, follow, and study.
I learned so much in this piece about a man I've read souch about. I particularly liked the focus on developing human capital
Great article Fred.
As much as people love to imagine themselves being the next Buffett, 99.9% of them are probably over the age of 11. Therefore having his track record is nearly impossible. I realized that I could be a fraction as good as Buffett and I'll still do very well despite starting much later and having a much lower IQ than Buffett. My goal is to take as many great lessons from him as possible and learn to integrate them into my investing philosophy. I think that's the best I can do.