By Bill Mann (TMF Otter)
February 16, 2000

First, that the game has passed Warren Buffett by. Au contraire. Let's look at what we know. We know that no investor in modern history has had positive returns for 35 consecutive years. We also know that only one, the chairman of Berkshire Hathaway, has done so for 34 consecutive years. No one else is even close.

Warren Buffett and Berkshire Hathaway have gained during the oil crisis of the early '70s and the stagflation of the late '70s and early '80s. It also gained during the market drop of 1987, and has consistently gained through the '90s. But 1999 was different, a market with gains several deviations beyond the norm, in which a man who will not buy unless he is certain that he is getting a bargain could find none.

The second has to do with the severe hits insurers and Berkshire's operating and publicly held companies took in 1999. This confluence of events may have broke the streak, but it did not break the man, as Rick suggests. The combination of factors found in 1999 is not likely to happen again. Warren Buffett, meanwhile, has resisted the institutional imperative and has not run out and bought tech stocks so he could be like everyone else. He refuses to play which way the wind blows with Berkshire assets. He's waiting for the wind to blow his way.

How do I know this? Several years ago, when the economics for insurance companies turned south, Berkshire Hathaway simply ceased writing certain policies for a while, rather than write unprofitable ones. Warren Buffett chose the path of greatest resistance, but the one that provided his shareholders the best path to a superior return on invested capital (ROIC). He waited for the insurance market's economics to change, unlike every single one of his competitors, and today Berkshire Hathaway's insurance companies' cost of capital remains the lowest in the industry. On these occasions, the company's operational earnings plummeted, but they were sacrificed to the greater cause of fiscal health of Berkshire Hathaway.

Here are the only things I need to know about Berkshire Hathaway to know that it is not dead: Warren Buffett is the world's greatest investor. He has, at his disposal, $36 billion in cash waiting for the right opportunity to be deployed. Cash drags down returns, but it doesn't drag down opportunity.

Once upon a time, Tom Landry, the Hall of Fame coach of the Dallas Cowboys, had seven consecutive losing seasons. As strange as it seems in our environment of demanding immediate returns (in sports and in investing), he was not fired. The ownership of the Cowboys recognized a superior mind at work, and knew that their patience would be rewarded. Which it was, in spades.

It is just so with Warren Buffett. The rumors of his demise are gross exaggerations. Those who recognize the superior mind at work and have patience will be justly rewarded.

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