May 22, 2019

Is Warren Buffett Still Relevant?

Is Warren Buffett Still Relevant?


In our society, we categorize people on the basis of gender, race and age. The term “Ageism” was created in 1968 by Dr. Robert Butler to describe the “stereotyping of and discrimination against people because they are old.” And while bias attitudes about race and gender are common, they are also condemned by many. Not so with ageism. Just go to your local Hallmark card seller and see the birthday cards mocking older people.

Sure, you have seen (even bought) cards making fun of age-related frailties, and how older people can’t change their minds or are forgetful. How true are these stereotypes? Warren Buffett, 88, defies such prejudices. Here are three reasons why he is still highly relevant in today’s digital, fast-paced world.

Warren Buffett

© thetaxhaven. Creative Commons

#1: Innovation and Strategic Relevance

Buffett is seldom credited with being an innovator, yet he has executed a business growth strategy over five decades that no one else had the vision, discipline and patience to emulate.

When you think Berkshire Hathaway, think about the power of “float”. Not the float you see in the Pasadena Rose Parade. No, think insurance float, the kind provided by Berkshire’s diverse insurance businesses. Float is the money from policyholders paying insurance premiums that is left over after paying insurance claims. In Buffett’s 2019 shareholder letter he reported that Berkshire’s “float was a staggering $123 billion.”

Why is float so important at Berkshire? Because over the years the company has demonstrated its competitive advantage in disciplined risk assessment and has honored insurance claims, even for mega-catastrophes like hurricanes. This makes Berkshire a trusted partner in business. And its cash on the balance sheet is a valuable source of financial stability and growth capital. In addition, Berkshire invests part of this float and earns returns that drop to their bottom line.

Rose Bowl Parade Float

© Noe Gold. Creative Commons

Buffett’s view of float is original and uncommon. It underscores his relevance as a financial business innovator.

#2 Longevity, Health and Resilience Relevance

Recently, scientists published new research that proves how getting enough sleep is critical to maintaining our immune system and physical well-being. Buffett and Munger have long recognized this fact. It is why – unlike most public companies they keep a significant amount of cash on Berkshire’s consolidated balance sheet. As noted above, Buffett maintains this generous cash cushion, so he can honor unexpected claims from catastrophic risks and also as a re-insurer of “long-tail” and “exotic” risks. Not only is this critical to maintaining trust, Buffett says it allows him and partner Charlie Munger to sleep at night.

Paul Lountzis, the founder of Lountzis Asset Management, credits Berkshire’s success over the years with CEO Buffett’s ability to evolve the company from a virtual cold start as a small home office investment company to a buyer of private family owned businesses and now, today as not just a holder of stocks, but importantly, a buyer of substantial operating, asset-based, cash-advantaged global businesses.

Lountzis invested in Berkshire 19 years ago and it remains his largest holding. “Warren Buffett is a learning machine,” Lountzis told me. “And while Mr. Buffett has continually adapted to changing investment opportunities, his core business principles on management, risk controls, and temperament have not changed.”

Warren Buffett and Charlie Munger.

Photographer Daniel Acker ©2016 BLOOMBERG FINANCE LP

How vigorous are Buffett and Charlie Munger at 95? Soon they will conduct a six-hour unscripted Q&A with over 20,000 visitors at their annual Omaha meeting. This year they are likely to get questions about Berkshire’s insurance exposure to the California wildfires and other events connected to the acceleration of global warming. They also can expect questions about their Heinz-Kraft investment, which has struggled to show profits.

As in the past, Buffett and Munger are unlikely to dodge these questions or deny these problems. This is what makes them relevant to their investors. And it allows us to sleep at night.

#3: Principled Relevance

Buffett is renowned for both his business and social principles. He believes in the Ovarian Lottery, which describes his gratitude for being born in the United States to loving parents. Instead of arriving as a baby in a country where people lack advantages that Americans enjoy – he won the Ovarian Lottery. And he doesn’t feel entitled to these advantages, he just got lucky. So Buffett and Susie, his first wife, decided they would give their wealth to those less fortunate.

In 2006, not long after Susie’s untimely death, Buffett announced that, over time, he would give the bulk of his fortune, then valued at about $31 billion, to the Bill & Melinda Gates Foundation. It would support their efforts to help the world’s poorest people. The only strings attached were those designed to ensure the money was spent efficiently and went to people who needed it most. Last year, the Wall Street Journal reported that about 43 percent of Buffett’s holdings in Berkshire have been given principally to the Gates Foundation.

Bill & Melinda Gates Foundation

© 2019 Gates Foundation

Then in 2010, Warren, with Bill and Melinda Gates. created The Giving Pledge. They imagined creating a community of billionaires who would promise to leave at least half of their fortune to causes like “poverty alleviation, refugee aid, disaster relief, global health, education, women and girls’ empowerment, medical research, arts and culture, criminal justice reform and environmental sustainability.” The signatories today include about 190 couples, families or individuals and their contributions total approximately $365 billion.

At a time when income inequality is seen as leading to societal unrest, creating examples of principled giving is an idea needed more than ever.

In just eight days, Berkshire investors will meet up in Omaha where we will celebrate relevance, healthy investment portfolios, innovation, candor, evolving strategies, female investing, and the Ovarian Lottery.

Perhaps we can also inspire new greeting cards that honor aging and also the wisdom of the world’s greatest Financial Life Coach.



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