Buffett Babies

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Muppet Babies, we make our dreams come true,
Muppet Babies, we'll do the same for you,
When your world looks kinda weird and you wish that you weren't there,
Just close your eyes and make believe and you can be anywhere.

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While the Li Ka-shing of America, as Warren Buffett is known to over 1.3 billion people, dithers over his own succession, investors looking forward to the next phase of Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) might want to take a page from history with the realization that it is extremely rare for one great leader to be followed by another (except in North Korea of course).  Like the Buffettolgists currently drinking deep at the Coke-Aid trough, we’ve all been dazzled by double-rainbows, but double-lightning is another matter – and even if the Oracle divines his successor wisely, the rest of the scorned team members may just pack up when Buffett’s choice is announced during the eulogy.

Buffett’s personal quest for a mommy is well-documented by the women that interview, ping pong, and mother him, but more off-putting is the public’s pursuit of a sugar daddy. As Big 4 accounting firm watchdog Francine McKenna writes, “Buffett’s halo…is made possible by the insatiable appetite of investors for gurus and sages rather than sirens.”

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 Wizards, Sages, and Oracles -- oh, my!:  There may be better ways to capture Buffett’s essence.

Buffett zealots are reluctant to dispassionately consider that the last five years have represented major changes to Berkshire Hathaway’s investing approach.  While covering unrelated technology companies, Nerdist host Chris Hardwick made an apt observation that, “Brands are the religions of our time...They are ideas that people align themselves with…Once you get invested in something it’s hard to walk away and realign your identity – even if someone doesn’t [consciously] think that way, many people do act that way.”

Another factor in finding the next Buffett (or the next Dalai Lama) is overcoming the home bias.  As Warren Buffett speculates:

Just being born in the United States in 1930 the odds were 30-to-1 against me. I didn't have anything to do with picking the United States as I emerged. And having decent genes for certain things. I was sort of wired for capital allocation, and being wired for capital allocation two hundred years ago in Nebraska wouldn't have meant a thing. But here I was in this soon-to-be-very-rich capitalistic system, and what I did paid off enormously in a market system like we have. If I'd had a talent in some other area that was way less commercial, I would've had a good time doing it, but it wouldn't have paid off like this.

But now much of the world is 1930s America – and if not, then they have come to America dragging their corner of the planet with them.  After all, while only 13 of America’s Fortune 1000 companies are run by black Americans, 27 of them are already run by executives of South Asian origin (and it is likely that Berkshire Hathaway will be as well).

Investors that have come of age in hybrid worlds of developed, transitional, and post-conflict economies have skills and experiences (and luck!) that could make them better prepared than Harvard rejects like Buffett.  Moreover, a number of international financiers hold US citizenship thus bypassing antiquated blood-code barriers to markets and sectors championed by Warren Buffett.  Serious Buffettologists should start excavating other markets for their reborn lama.

For an investor looking to model himself after other successes, it is also worth considering that Warren Buffett really is the Li Ka-shing of America.  While Berkshire Hathaway has become a well-known name, billions more pay attention when they hear about anything being carried out by Li’s Hutchinson Wampoa or Cheung Kong Holdings Limited.  (Incidentally, like Berkshire Hathaway, Hutchinson Wampoa was a merger of two moribund 19th-century companies which were inadvertently given new life by their legendary investors.)

Not only did the world’s third richest man Warren Buffett (born in 1930) grow up in one of the most developed socio-economic regions in the world and had a congressman father who understood investing, but he also had opportunities to go to top schools and studied under his generation’s greatest minds.  In contrast, Li Ka-shing (born in 1928) became the world’s ninth richest man from a far less advantageous position where instead of building capital from a newspaper route at age 11, he dropped out of school and spent that same period fleeing Communists and making plastic flowers to support his family – all without the amenities of a Foxconn contract.  Li has also found time for systematic philanthropy sooner than Buffett as well, so like another foreigner George Soros, his totals are probably far below where they had been had they chosen to simply talk about giving like Buffett has. (Li’s sons are also better prepared to take over either conglomerate –  unlike Buffett’s hippie castoffs.)

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These aren’t quite the new Wizards we’re looking for…

Saudi Arabia is the most liquid market in the world, and it should come as no surprise that the (self-proclaimed) “Buffett of Arabia” Prince Al-Waleed Bin Talal is angling to become the next household name thanks to his continuing success with his 95% stake in the barely public Kingdom Holding Company.  Though hailing from Jeddah, gateway to the Islamic holy sites and the most cosmopolitan city on the Arabian Peninsula (and less ridiculous than Dubai), Al-Waleed’s investment philosophy does not seem particularly unique (officially he’s a value guy), nor as folksy as Buffett’s – though it is decidedly more international.  (Although the company’s website asserts it is the largest foreign investor in the United States, the site does not appear to have been updated in the last few years, yet it is still feels less derelict than the Berkshire one.)

With a mix of companies more diverse than Berkshire’s (and not averse at all to technology), his emphasis is currently media (old and new), fancy hotels, and a mix of financials (most prominently Citigroup) – and as his letter to Rudy Giuliani suggests, it is unlikely he will be buying Galilee-based ISCAR Metalworking from Berkshire anytime soon.  Still, while Berkshire has doubled over the last decade, Kingdom has lost about 15% of its value from its $21.1 billion high in 2000.  Yet, 57-year old Al-Waleed points out, “When [Buffett] was my age, he was not as big as me.  I still have 20 years.”  (Also, in a departure from Buffett's youthful flirtation with a Pepsi breakfast, the Prince evidently has the camel humps to continue his love affair with drinking Pepsi while investing heavily in Coca-Cola.)

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 Not this kind of Sage…

Maybe the Next Buffett needs to spice up his prospects with a scrappy sidekick.  After all, Charlie Munger’s love for bulk shopping and penchant for Chinese have made him far more than a silent partner in Berkshire’s strategery.  Perhaps, a team comprised of an industrialist Russian Uzbek and a tech-whiz Russian Jew could be the next gravy train for wayward Berk’heads.

The world’s 28th richest man Alisher Usmanov, majority shareholder of Metalloinvest, is the latest person to hold the title as Russia’s top billionaire, and has extensive old economy holdings through out the former Soviet Union as well as the not-as-yet-former British Commonwealth.  Like Buffett, he is a chunky monkey that gets along with his president.

Eight years Usmanov’s junior, billionaire Yuri Milner (tied with Munger at #1153 on the Forbes list) escaped the fate of his old boss, Mike Khordorkovsky (Putin’s favorite tax evader), and went to Wharton (and claims to have been the first Soviet citizen to earn an MBA from the USandA in 1990).  In 1999, he teamed up with Usmanov to bet heavily on Russian technology – and it worked (don’t be surprised, the Russians not only invented laser eye surgery, but go to any Microsoft or other tech cafeteria and there’s bound to be pilmeny alongside the curry options.)

Though Milner is no longer chairing Mail.ru Group (LSE: MAIL) which held his Russian interests, Milner is focusing on ventures outside the Federation through his private firm DST Global (in which Usmanov has a 25% share).  DST's management is an amazingly diverse and international team with strong ties to Goldman Sachs.  Usmanov and Milner are building on their success with Russian web services – Russian Yahoo (Mail.ru) and Russian Facebook (Vkontakte), and currently using their capital to conquer America’s Silicon Valley by buying up American Mail.ru (Yahoo) and American Vkontakte (Facebook) as well as becoming a major force within Zynga and Groupon.  (Also, news is that Milner is already beginning to compete with Al-Waleed for Twitter shares.)

While the Usmanov-Milner’s hyper-active growth style couldn't be more different than the Buffett-Munger hyper-passive value approach, they seem to have a chemistry and a strategy that has already begun to reshape how the Silicon Valley is comporting itself, and their new paradigms may be replacing Buffettology as the investor’s touchstone depending on how their experimental arrangements with forty-some start-ups and the coming Facebook madness shakes out.

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Definitely, not this kind of Oracle

Writing about another highly publicized succession in his book The Late Night Wars, New York Times media columnist Bill Carter brings perspective:

[Conan] O’Brien had dreamed of assuming Carson’s mantle since he’d watched “The Tonight Show” with his father in the living room of their Brookline, Massachusetts home.  That shared memory had a powerful pull on Conan…[Unfortunately, over dinner with Carson discussing how comics used to speculate on who would take over from Johnny,] Jerry Seinfeld told Carson, “the one thing we did not know was that you were taking it with you.”

Ultimately, when people invest in Berkshire Hathaway, they aren’t interested in a defunct textile mill, they are interested in Warren Buffett and his lawyer.  So while the Omaha circus in the A.W. era is likely to diminish, expect foreign gurus to be attracting the disillusioned Woodstock Capitalists into their luxury ashrams.

 

 


Nick Slepko has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.

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