Of course, if you believe that the stock market is a giant cluster fuck which produces no efficiency gains at all, then Buffett's billions are not just meretricious because he's lucky, but because he's a social parasite.
But then, FT isn't likely to go there.
Michael McIntyre
>>> dhenwood at panix.com 05/07/02 04:43PM >>>
[apropos Warren Buffett...]
Financial Times - May 7, 2002
COMMENT & ANALYSIS: Rich beyond reason: Warren Buffett is to be admired - but his fortune bears no proportion to his social or economic contribution, argues Tony Jackson
By almost any measure, these are the golden years for Warren Buffett. He has emerged from the rubble of the technology bust as the world's foremost investor. He dispenses wisdom on the auditing lessons of Enron and the insurance lessons of September 11. At 71, he is American capitalism's Grand Old Man.
He is also the second richest person on the planet. Fortune magazine puts his wealth at Dollars 35bn (Pounds 24bn), sandwiching him between Bill Gates of Microsoft and Larry Ellison of Oracle.
This is where the doubts creep in. Without Mr Gates, the world would not have Windows. Without Mr Ellison, it would not have Oracle's enterprise software. What would it lack without Mr Buffett? What, in short, is he for?
At this point, a disclaimer is in order. I work as a stockbrokers' analyst, a profession that Mr Buffett holds in low esteem. Carping might thus be put down to resentment, envy or simple cheek.
In fact, I admire Mr Buffett immensely. He got where he is through unaided intellect and has harmed no one we know of along the way. He is the best financial commentator around and his writings have taught me a great deal. But Dollars 35bn?
Let us remind ourselves where that money comes from. The first source, of course, is portfolio investment: the patient accumulation of, for instance, Dollars 9bn-worth of Coca-Cola stock and Dollars 5bn-odd of American Express. The second is the purchase of whole companies, ranging from US insurers to Yorkshire Electricity in the UK. Ownership is direct but management is not. As Mr Buffett puts it, in his usual self-deprecating style: "We delegate almost to the point of abdication."
This lack of involvement is crucial. Mr Buffett does not aim to spoil the show by running it; Berkshire Hathaway, his top company, employs just 12 people. Rather, he spots assets that are for sale below their true value, then buys and holds them in perpetuity.
Granted, there have been external beneficiaries along the way: those lucky or astute enough to get their hands on Berkshire Hathaway shares and hang on to them. In principle, though, Mr Buffett is reluctant to issue shares, just as he is reluctant to assume debt. On principle, too, his top company does not make charitable donations.
The more we consider him, in fact, the more he looks like the local miser writ improbably large: the man who saves his pennies when young, buys the house next door and ends up owning the whole street. This is not necessarily a bad thing. From the town's point of view, it need not matter who owns the property. In economic terms, the main thing is that the rents are deposited at the bank and thus recirculated. If the miser chooses to devote his life to the principle of compound interest, that is his affair.
So what is the problem? Essentially, it seems to me, it is one of proportion. Michael Lewis describes in Liar's Poker how his father - like many Americans of his generation - held certain basic beliefs about capitalism. One was that anyone who had made a lot of money deserved admiration and respect. Granted that the system was essentially fair, it followed that those who had earned a lot must have done a corresponding amount to supply their fellow citizens' needs or desires. To that extent, they were public benefactors.
The elder Mr Lewis had his faith badly shaken in the 1980s when he discovered the vast sums young Michael was being paid as a bond trader on Wall Street. This point, it seems to me, can be extended. The basic principle is not necessarily wrong - even bond traders, after all, have their uses. The question is one of degree.
Mr Buffett, one might argue, has his uses as well. His express aim has been to identify well managed companies, buy them and let them get on with it. This is, of course, at odds with the received wisdom of recent years, which says that corporate assets are best exposed to the hurly-burly of the financial markets. Similarly, Mr Buffett's record as a portfolio investor has dented the notion that no one can beat the financial markets, since they are insuperably efficient. On both counts, good luck to him.
But I come back to the fact that the image he presents of US business is an uncomfortable one. An older generation of tycoons, from Andrew Carnegie to Henry Wellcome, took it as axiomatic that when they died, their wealth should be devoted to the general welfare. On Mr Buffett's death, his controlling interest in Berkshire Hathaway will pass to his wife, or, failing that, to a family foundation. Either way, the business will be run on just the same lines as before. In other words, the town miser aims to carry on buying houses beyond the grave. It is his perfect right to do so, if he can. But it hardly seems grounds for his fellow citizens to remember him with any great affection.
The writer is UK equity strategist with ING Financial Markets