Forget Buffett The Investor. Follow Warren Buffett The Manager – ValueWalk Premium
Berkshire Hathaway B shares Warren Buffett

Forget Buffett The Investor. Follow Warren Buffett The Manager

Forget Buffett The Investor. Follow Warren Buffett The Manager by Roger Lowenstein, Fortune

Warren Buffett is regarded as the best investor of our time; arguably, his management record is just as singular. He took over as head of Berkshire Hathaway in May 1965 — 50 years ago. And he is still at it. Think about that. Alfred P. Sloan, perhaps the most storied CEO in American business, ran General Motors for 23 years. John D. Rockefeller ran Standard Oil for 27. In recent times, Bill Gates was CEO of Microsoft for 25.

But here’s the thing. Investors around the world avidly mimic Warren Buffett’s investment approach, yet it’s fair to say his managerial model has had zero impact on the corporate culture. Charlie Munger, Buffett’s longtime partner and Berkshire’s vice chairman, says the “Berkshire system” is essential to its success. Nonetheless, Munger wrote in this year’s annual shareholders letter, “No other large corporation I know of has half of such elements in place.”

One hallmark of Warren Buffett’s management is unusual attention to capital allocation (for Buffett, adding a company to Berkshire is akin to adding a stock to an investment portfolio). But once he makes an acquisition, he almost never sells, and gives managers extreme autonomy. Another is shunning of bureaucracy. Berkshire has no processes to standardize the more than 60 operating units it owns, no companywide budgeting for a conglomerate with 340,000 employees. A third hallmark is renunciation of familiar rituals that in Buffett’s view promote short-term thinking. Thus, no earnings guidance, no regular stock splits, no stock options.

Admittedly, not every aspect of Warren Buffett’s style would fit every business, and you can argue that elements of his approach can lead to problems. (More on that later.) But over the half-century of his management, Berkshire’s stock is up 12,000 times, while the Dow Jones industrial average is up 18 times. Berkshire’s market cap is $350 billion, the third highest in America. You’d think some manager would find something worth imitating.

(A disclosure: I’m invested in Berkshire, I sit on the board of a mutual fund that owns the stock, and I’m the author of a Buffett biography. So don’t look here for a disinterested forecast of Berkshire’s future.)

Oddly enough, Warren Buffett’s signature tactic—friendly acquisitions of strong, well-led companies—was violated when he bought Berkshire itself. As Buffett tells it in his most recent shareholders letter, his takeover of Berkshire, a textile manufacturer besieged by low-cost rivals, came about almost impulsively. After his investment partnership bought a stake, Buffett grew disenchanted with the company’s management strategy. He eventually bought a controlling interest and ousted the CEO. That was in 1965, when Buffett was all of 34 (he is 84 today).


See full article here by Fortune

Forget Buffett The Investor. Follow Warren Buffett The Manager


Saved Articles