Wednesday, October 12, 2005

Goodbye to a Superinvestor, $90 billions gets together in Nebraska, and a book coming?

The value investing community lost one of its all time greats, Bill Ruane, earlier this week. When Buffett unwound his partnership in 1969 he recommended his investors do one of two things 1) follow him into Berkshire Hathaway or 2) Invest with Ruane's Sequoia Fund.

In Buffett's classic The Superinvestors of Graham-and-Doddsvile speech (a must read for University of Chicago students trying to wipe their minds clear of any EMT nonsense - or twaddle as Charlie would say) he offers this praise:

Table 4 shows the record of the Sequoia Fund, which is managed by a man whom I met in 1951 in Ben Graham's class, Bill Ruane. After getting out of Harvard Business School, he went to Wall Street. Then he realized that he needed to get a real business education so he came up to take Ben's course at Columbia, where we met in early 1951. Bill's record from 1951 to 1970, working with relatively small sums, was far better than average. When I wound up Buffett Partnership I asked Bill if he would set up a fund to handle all our partners, so he set up the Sequoia Fund. He set it up at a terrible time, just when I was quitting. He went right into the two-tier market and all the difficulties that made for comparative performance for value-oriented investors. I am happy to say that my partners, to an amazing degree, not only stayed with him but added money, with the happy result shown here.

There's no hindsight involved here. Bill was the only person I recommended to my partners, and I said at the time that if he achieved a four-point-per-annum advantage over the Standard & Poor's, that would be solid performance. Bill has achieved well over that, working with progressively larger sums of money. That makes things much more difficult. Size is the anchor of performance. There is no question about it. It doesn't mean you can't do better than average when you get larger, but the margin shrinks. And if you ever get so you're managing two trillion dollars, and that happens to be the amount of the total equity valuation in the economy, don't think that you'll do better than average!

Note Ruane continued to crush the market for years after this article was written.

A quick look at Leucadia National here. They have been called a "little Berkshire" more than one time, and some of it is justified. From the end of 1978 through the end of 2004, Leucadia's stock soared an annualized 33% (compared with 27% for Berkshire's A shares). I never quite understood the huge bet they made on WilTel though.

An interesting piece here from The New Yorker on "Last Best Chance" the Buffett backed film made to stimulate public support and political pressure on the Bush Administration and Congress to do something serious about the danger of nuclear terrorism.

1,800 very lucky University of Nebraska students joined Warren and Bill Gates for a Q&A session. Apparently, Gates won't be running Berkshire when the time comes to pick a successor. "It won't be me," Gates said of who would take over for Buffett, 75. "Berkshire's got a lot of great people who understand their system. If you have a fool.com subcription, a nice summary is written up here:

"Both Buffett and Gates said they wouldn't mind bearing a heavier tax burden when a student asked them their thoughts on adopting a flat tax rate. Buffett elaborated by saying that the current tax system needs to be more progressive. He got a round of applause after pointing out that many soldiers fighting in Iraq pay higher tax rates than he does.
'I frankly think it's very unfair..' -Buffett"


Finally, and I'm not fully sure if I believe this one. Cnnfn.com is reporting that "Investment guru Warren Buffett is planning to cooperate on a financial advice book that has prompted a bidding war among publishers eager to land the title, according to a newspaper report Wednesday."

We already knew Alice Schroeder was planning on writing a book about Berkshire - in fact she quit her job covering them as a research analyst to write it. And in the past Warren has indicated that he wanted to write a book, but said recently that he really didn't have time to do it. I also believe I heard him indicate that he would only do it with Carol Loomis. My guess is that Warren writes a forward and has a blurb on the back at most.

And BUD keeps getting cheaper.

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