Demystifying the Legend of Warren Buffett

Warren Buffett is a smart guy. Warren Buffett is a rich guy. Most folks assume a connection between the two…and that’s probably true. But Warren Buffett is also a lucky guy.

Even though luck is not a feature of the officially sanctioned Buffett mythology, good fortune has certainly contributed to his large fortune.

Buffett has referred to himself alternately as a winner of the “Ovarian Lottery” and a member of the “Lucky Sperm Club.” In other words, he was lucky to have been born in the United States in 1930. But after that, his genius took over. At least that’s the myth. He is rich because he is smart. End of story…beginning of myth.

Warren Buffett may – or may not – be a genius, but he did at least one very smart (or lucky) thing: He stopped buying stocks when he could not find anything to buy.

Buffett operated a partnership from the late 1950s until 1969. During those 13 years that partnership delivered almost a 30% annualized return and made him his first $25 million. And then he just shut it down.

He said that he couldn’t find any investing opportunities that appealed to him. So he just shut down the partnership and sent the money back.

“I didn’t know how to be a hero anymore,” Buffett said at the time. “I had been a Niagara Falls of new ideas. But I became an eyedropper.”

Not knowing what to do, he did nothing…and that was brilliant.

Much of Buffett’s wisdom stems from this one investment trait: when you don’t know what to do, don’t do anything. Most of the rest of his “wisdom” is just the effluent of a successful guy processing his popularity.

Warren Buffet is probably rich because he is smart. But maybe he is rich simply because he was lucky and is not stupid. We’ll probably never know. What we do know is that the entire world – including Warren Buffett – considers Warren Buffett an investment genius.

The man does not merely tolerate adulation, he relishes and embraces it. Accordingly, the “Oracle of Omaha” regularly dispenses wisdom and witticisms to his adoring public. Berkshire Hathaway’s annual report, for example, is famous for its faux-folksy investment observations.

To his legions of disciples, each annual letter is a sacred addition to the Holy Writ. To the rest of us, Warren’s musings are just that – the musings of a successful investor. Often insightful; always drenched in a “gee-whiz,” “aw shucks,” tone. Read through an annual letter and you just might feel like you’ve consumed a marshmallow casserole, topped with honey, maple syrup and brown sugar.

Be that as it may, the man knows a few things about investing. Buffett is a legend…and deservedly so. Even if he isn’t a genius, he is at least a very successful investor with a lot of miles on his odometer. No matter how nauseating his prose and pronouncements may be, he has some very unique and worthwhile insights to share.

Eric Fry
for The Daily Reckoning