The Ridgewood Group Value Investing Blog

Warren Buffett is a hero and mentor to many of us in the value investing community, including those of us here at The Ridgewood Group. To those in the know, he is admired for his wit, wisdom, business acumen, and many other qualities as well. Until recently, I had personally encountered almost no one that did not largely feel this way or express admiration for his many good qualities and contributions. 

Of course, the vast majority of people probably know him only superficially as “that very rich guy, second to Bill Gates” or “that Coke-and-Gillette-buy-and-hold-forever guy.” In a culture which deifies success for its own sake and idolizes the super rich (good looking or not) and the famous and beautiful, its not surprising that Buffett has a large and diverse following. Almost anyone who has ever met, read about, or studied him in any depth has come away humbled and impressed at a far deeper level.

Until recently, the only person I have encountered who disliked Buffett was my ex-boss in investment banking, who openly expressed disdain for the Oracle of Omaha. I discounted this hatred, however, since his criticism seemed to be based more on personal bitterness related to Warren’s handling of bonus compensation when this individual was working as a senior banker at Salomon Brothers during Buffett’s brief Chairmanship than on any direct criticism of the man’s principles.

I was therefore surprised and amused when I recently ran across Victor Niederhoffer’s blog called Daily Speculations. I don’t know him. He seems to be a interesting, colorful, even eccentric individual who calls himself “The Chairman”. The name of his blog says much about his mindset. But far more amusing are his postings on Buffett and Berkshire. I have not read more than a small handful of his posts, but it was not hard find gems like:

1.) Shorting Berkshire where he volunteers “Out of shame, hubris and spite, I shorted some extra Berkshire even though it is even more self-destructive and wrong to short a conglomerate like Berkshire than to try for a boast in squash. I doubtless will be licking my wounds on this, as my plan is to wait until it goes below $85,500, take my 10% or so profit, and then hedge it with some S&P futures.” or

2.) Nebraska Chronicles where he surmises that he has “read all the books about the Sage, [and] his bearish annual reports And I find that there are only two sensible and valuable things he has said (as he never talks in public about the importance of using tax losses and float from an insurance operation to buy stocks for the long term during a rising yield curve environment, and the importance of having very good friends and token ownership in the media, which are the actual sources of his success)” or

3.) Another post where he concludes that “Berkshire Hathaway has been hobbling along near its lows in the 81,000 handle as is appropriate for a company whose chief honcho infuses with disguised hubris his mantras: “I am so much more honest than you or her,” and “I cant find any good stocks to buy for the last 10 years” and, ” I find dishonesty rife in the investment field as compared to myself and the companies I buy, which I can buy in a flash by just looking at their financials, and I just look for companies I understand like See’s Candies and Brown Shoes.” However, the Friday 9/17 close of 2720, a 21-month low, seems to me the manifestations of the “Morse effect” (see EdSpec) so common in markets and life where a former revered statesman finds that all his former hagiographers are the most vehement in their execration when he stumbles. I found the same effect directed at me when I “went under” in 1997 (have I mentioned it in the last week?), as is appropriate.”

BTW, the last sentence is a reference to the following (quoted from an article by Robert Hunter called “Victor Niederhoffer’s Garage Sale” on derivativestrategy.com) which explains that “Niederhoffer’s $130 million funds blew up on October 27, 1997, when the Asian crisis spooked the U.S. equity market, wiping out all his capital. . . . In order to pay down his debts, Niederhoffer took a mortgage on his estate and sold an interest in a small investment banking business for $1 million, but these steps were not enough to maintain even a modicum of the lifestyle to which he and his family had been accustomed. The result: the silver had to go”

No doubt, Mr. Niederhoffer learned from his 1997 experience and should get kudos for being open about his own setbacks (we all have them). However, his comments above reminds me of the quote in the Food for Thought section of our website at http://www.ridgewoodgrp.com/ from Andrew Carnegie about never having meet someone who made a fortune from speculation and kept it.

My point in sharing the above is not to criticise Mr. Neiderhoffer, as he is certainly within his rights to have his opinion and share it with the world (thought he might want to carefully re-read and review Buffett’s many discussions on Margin of Safety given his 1997 experiences).

In a marketplace of ideas, we should all expose ourselves to multiple points of view with the hope that the best ideas will win out in the end. Indeed, as Charlie Munger has pointed out, Berkshire (and its annual meeting) is not far removed in many respects from the annual gathering of a cult (albeit one focused on celebrating and learning a number of fundamentally sound ideas). I know more than a handful of Buffett followers who think nothing of thoughtlessly substituting the Sage’s thinking for their own (even thought Buffett and Munger frequently and forcefully advise everyone to think for themselves).

I have no quibble with Mr. Neiderhoffer, though I think he is largely wrong in the above points (his point about float however is right - not that Buffett hides the fact). No, my point is to remind us that you simply can’t please all of the people all of the time (so you shouldn’t try). Also, since investing is a probabilistic pursuit, there is even a small chance that Neiderhoffer may, in time, be proven right in some of his contentions. My money, however, is on Buffett and I don’t think its going to be even close.