On 3 May, Warren Buffett announced he was stepping down as the CEO of Berkshire Hathaway, handing over management of one of the largest and most successful investment firms of all time to Greg Abel. Investors will be asking whether Abel is up to the challenge, or, if not, where they can find someone as brilliant as the man he is replacing. The blunt answer is this: the markets won’t ever see his like again. There are three reasons for that.
First, as Buffett himself was always the first to point out, he happened to start his long career at precisely the right time. The post-World War II US economy in which he made the bulk of his fortune was characterised by a long period of rapid growth that had not been seen before, and which we may never see again. Sure, it took incredible skill to pick the right stocks and spot the right trends, but that is a lot easier when the economy is growing at the same time. A slower global economy, and one dominated as much by China as by the US, won’t offer the same opportunities.
Next, when Buffett began, there were lots of small companies to invest in that could generate stellar returns. Buffett’s big early successes were all in businesses that no one was paying much attention to. In the 1960s, he built large stakes in companies such as Dempster Mill Manufacturing and Sanborn Map, which generated outstanding returns. There are far fewer listed firms to choose from these days, especially among smaller companies.
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We are all familiar with the way the number of quoted businesses has fallen in the City over the last 20 years. But it has been just as dramatic on Wall Street. In 1996, there were more than 8,000 quoted companies in the US, but that figure has dropped to only slightly more than 4,000, and it is still going down. When Buffett was starting out, there were lots of different companies he could take stakes in, and there were many more that had been neglected by investors or their managers for many years. The chances of finding a spectacular winner was therefore a lot higher. With so few left, it will inevitably be a lot harder for anyone else to pull off the same trick.
‘The next Warren Buffett doesn’t exist’
Finally, the markets are far more researched than they ever were in the past. Buffett is famous for voraciously reading reports and accounts to find the next business to back. From the start of his career, he scoured financial statements to unearth assets that had yet to be exploited. That is possible if you are very good at scanning balance sheets and if no one else is taking the trouble. But there is far more information around now than there was when Buffett was starting his career. The hedge funds and private-equity houses are all looking at the same information and trying to spot the same opportunities. Artificial intelligence will streamline that process even more.
It is hard to imagine that a couple of guys in Omaha, no matter how smart they were, could spot something that the rest of the world had somehow missed. Buffett’s reputation is completely deserved. But it seems unlikely there will ever be another investor who does quite as well as he did. The investment world has changed too much for anyone to turn themselves into one of the five richest men in the world simply by investing well. The next Buffett doesn’t exist – and there is no point in looking for him.
This article was first published in MoneyWeek’s magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
