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Buffett, in fact, is so convincing in his endlessly folksy way because he has an extraordinary record: Over the years, he has acquired lots of family companies and pretty much left them alone to make a lot of money. But Buffett, as always, is not only unique, but willing to exploit that uniqueness for all that it's worth. His plea to regulators -- I'm the good guy! -- resembles his apparently heart-felt belief that investors should follow him on the true path of value investing. The problem in both cases is that Buffett, as an investor and despite a relatively down year (for him: we should all be so lucky), sets high standards. You can read every book published on Buffett and his investing style and still not come close to his returns unless you toss them out and save up to buy a share or two of Berkshire stock. That applies, by the way, to professionals and amateurs. In particular, trying to convince the latter to imitate Buffett's style might create more virtuous investors, but hardly prosperous ones. Reading a book isn't going to help you play one-on-one with LeBron James.
Buffett's M&A strategy -- his discipline on price, his judgment on people, his insistence on buy and hold -- rises from that preternatural ability to judge value. But given that Berkshire and Buffett are unique, there are going to be very few buyers out there that can come close to him, including financial and strategic buyers. Indeed, in his scolding of private equity shops, which he once referred to as "porn operators," Buffett skips blithely over fellow corporate buyers; and in doing so he leaves the impression that they are like him. In fact, strategic buyers -- the bulk of the buyers out there -- traditionally have suffered their own deficiencies. LBO shops do pile on debt and inject small slugs of equity, and that can be a problem. But they are focused, and their governance arrangement is both clearer and less attenuated than strategics. Corporate acquisitions often suffer from cultural problems, strategic fuzziness, governance woes and a stifling bureaucratism. Financial buyers may resist putting in equity, but strategics will shutter an operation in a flash. For all the argument embodied in the "porn" reference, strategics may be even more sensitive to short-term demands. Strategic sensitivity to the stock market may force an even greater short-term focus. The point is that M&A is like effective long-term investing: A lot of it (depending on where you are in the cycle) doesn't work. Buffett's record is good in this regard, though not close to perfect. And he makes a nifty little shift in his homily about rivals who don't care about the future of these companies, starting with his traditional practice of focusing on family companies and ending up talking about large, bureaucratic utilities, which are a long way from See's Candies or the Nebraska Furniture Mart. The fact is, Buffett is looking for businesses that have defensible competitive advantages bordering on natural monopolies. Utilities fit that bill, particularly if the pace of deregulation slows. Buffett may be the perfect buyer for some companies. But he often wants to pretend that he should be the only buyer, that his way is the only way and that, given his self-evident (and assiduously self-promoted) virtue, he should not face competition. Again, you can't argue with his record, but you can wonder about his moral self-regard and where his wisdom ends and his self-interest begins. In a complex and highly diversified economy with lots of different companies with lots of different needs, to consign an entire sector of buyers to the ash heap (whether financial or strategic) is tantamount to suggesting that an entire swath of sellers is also unworthy. You can admire LeBron's skills without pretending that everyone can, or should be, just like him. - Robert Teitelman Robert Teitelman is the editor in chief of The Deal. CategoriesPrivate capital video
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