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Berkshire Hathaway
Beliefs vs. Actions

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By dcardno
November 7, 2001

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EliasFardo supports his statement that WEB adheres to a consistent "buy the company with a big moat" strategy, saying:

"For instance, I may not understand all the X's and O's of football. But if I follow a team that has won 15 games in roll against excellent competition, I have a certain amount of faith that it will do well in the next game."

But we can all accept that Mr. Buffett has an excellent track record, and is an astute investor - that isn't at issue in this discussion. The question is whether the FOL deal is consistent with his public statements about investing for long-term value, and with his previous investments, or whether it is a reversion to the 'cigar butt' investing style he used in his early career.

To adopt your football analogy, let's suppose that the coach of this winning team was quite public about his strategies, and was often quoted saying that the key to football success was the running game. Legions of fans concentrated on his selection of running backs and choice of offensive linemen ("the keys to the kingdom of ball control" he calls them).

But then you notice some funny things in the statistics. In seven of the fifteen wins the team passed for more yardage, and on more plays than they ran the ball, and in two others they were about even. Two games were won by scoring from the defense on fumbles and interceptions. One game that he refers to as a 'real running game for real football players' was a defensive duel with very little offense by either team, aside from a single 80-yard run by our heroes. And finally, they won their last game on a trick play involving a midget sneaking under the other team's defensive line. All the while, the coach is talking about the importance of the run - even though there were only three games where the running game was a decisive factor.

We can all agree that the coach has a winning record, he is inventive, a student of the game, and a great leader and spotter of talent. What we might not agree on is whether his 'trick play' win was part of a long record of reliance on a solid running game, or part of a history of brilliant inventive coaching. This is the question thedumbox has been presenting. Evaluation of Buffett based on performance does not necessarily translate into proof of his consistency.

It is a human tendency to observe patterns, and to impose patterns even if they are not there: hence pictures in clouds and technical stock analysis. It is also a human tendency to justify and rationalize one's actions. It is possible that WEB is imposing a pattern that does not really exist when he describes his investing style. Personally, I don't believe this to be true, and I think Warren is pretty consistent, and very focused in how he seeks out and evaluates opportunities. At the same time, personal belief is a long way from proof. So far we do not have enough proof to refute thedumbox's assertion that WEB is driven by potential profit in a transaction at (least as?) much as by investing principles.

Cheers,

Dean

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