Why Warren Buffett Hasn't Been Fired Despite Failing to Beat the SP 500
Introduction
Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has been a subject of envy and jealousy among investors. Despite facing criticism for not consistently outperforming the SP 500, he remains at the helm of one of the most successful investment firms. This article delves into why Buffett has not been fired and what that tells us about investment strategies and long-term success.
Why Investors Fear Humility
It is significant to note that many younger investors or non-investors often do not understand the sheer span of time required to build wealth. They aspire to achieve financial success at an unrealistic pace, often equating a successful investment to an overnight miracle, rather than a calculated, long-term strategy. The United States, as a capitalist country, respects private enterprises and does not intervene to fulfill the desires of a specific demographic. This is exemplified by Warren Buffett's enduring leadership despite not always outperforming the SP 500.
Buffett's Long-Term Success
Warren Buffett's success with Berkshire Hathaway is a testament to the power of long-term strategic thinking. While some may pooh-pooh his inability to consistently beat the SP 500, his tenure at the company is marked by a stellar track record. The share price of Berkshire Hathaway has, indeed, beaten the SP 500 over the long term. However, it is crucial to understand that over-performance doesn't necessarily last indefinitely. This is true not only for Buffett but for many other successful investors as well.
Role and Responsibilities
Another factor in Buffett's continued tenure is his evolving role. While his primary responsibility of beating the SP 500 for every single year might have been less important, his overarching goal of driving value for shareholders has remained unchanged. This broader mandate allows him to focus on long-term growth strategies rather than short-term gains, which are often the subject of criticism.
Finding a balance between these two metrics is complex, and it often happens that a manager might underperform in one period to ensure better performance in subsequent years. The rationale is that consistent long-term growth is more beneficial for shareholders than occasional short-term gains.
Succession Planning
Buffett has been proactive in succession planning, ensuring a smooth transition when he eventually retires. His son, Howard Buffett, has already been groomed to take over the helm, providing continuity and stability. This planning further reinforces the idea that the company is in capable hands, regardless of short-term performance.
Despite this, it is unlikely that anyone can replicate Buffett's long-term success. Berkshire Hathaway's success is also attributed to the exceptional skill and knowledge of its management team, which includes Buffett as a key figure. The company now faces challenges of growth because it is no longer a small firm; instead, it is a behemoth in the financial world.
Criticism and Reality
Critics often point to the past 10 years as a period where Buffett has underperformed relative to the SP 500. However, it is important to note that Warren Buffett's investment strategy is rooted in areas he is familiar with, such as value investing in stable, well-run businesses. The tech sector, while difficult to predict, has had mixed results over the same period. ETFs like QQQ (NASDAQ ETF) and AARK (ARK Innovation ETF) have faced significant fluctuations, often underperforming when compared to the broader market.
The long-term nature of investment strategies should not be judged by short-term fluctuations. While QQQ reached its peak in 1999 and did not return to that level until 2015, it is still considered one of the better ETFs. AARK, on the other hand, faced challenges and only saw a significant turnaround in the previous year.
Therefore, it is clear that the long-term view is more critical in evaluating an investment manager's performance. Warren Buffett's tenure at Berkshire Hathaway is an endorsement of patience and strategic thinking in a world where technological and market changes are constant.