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Anyone who thinks Warren Buffett is past his prime should have seen the world’s richest man tossing off one liners and charming the crowd at the Toronto Board of Trade earlier this year. Whether he was discussing his philanthropic endeavors (where he’s teamed up with his good buddy Bill Gates) or how mortgage-backed securities poisoned the U.S. financial system (“the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end”), the rumpled billionaire was as charismatic and as quotable as ever.
We hope that the greatest investor of all time has many, many good quotes left. But we also have to acknowledge reality. Buffett is 77 and even his steady diet of Cherry Coke and hamburgers can’t keep a guy going forever. Investors who would like to put their money into Berkshire Hathaway, Buffett’s flagship company, have to deal with the unpleasant fact that Buffett may be on his last lap or two as champion of the stock market marathon.
That raises a fascinating question: who is the next great Buffett-like investor going to be? He or she must be a great stock picker, of course. But that’s just the beginning. What distinguishes Buffett is not only his stock market acumen. It’s also his willingness to state his opinions in plain English, his independent turn of mind, and his willingness to treat investors as if they were his partners.
With that in mind, we went in search of younger investors with some of those same characteristics. We found four people in Canada and the U.S. who, in our admittedly subjective estimation, remind us of the master. One runs a hedge fund, one heads an investment trust, and the remaining two lead public companies. Each has demonstrated an ability to invest well. Each has been willing to go against the crowd and make courageous investing decisions. Each writes a Buffett-style letter to investors.
While we can’t guarantee that these investors will do anywhere near as well over the next decade as Buffett has done in the past, each of them has already displayed some moves that remind us of the great man. Whether you’re looking for a place to park your money or simply some smart investing commentary, we think they deserve your attention.
Prem Watsa
Fairfax Financial
Toronto
Who is he?: The 56-year-old CEO of Fairfax Financial Holdings has often been called the Buffett of the North. He’s run his insurance holding company since 1985 and has grown its share price by an average of 26% a year during that time.
Best call: Watsa and his investment team realized way back in 2003 that the U.S. housing boom was built on a shaky foundation of debt. They bet on a collapse in the mortgage market by buying what are called credit default swaps (CDS), a form of insurance against bad loans. Last year, Watsa’s CDS position soared in value as U.S. home loans soured. He turned a $341-million investment into a $2-billion-and-counting payoff.
Worst call: In 1998, Watsa acquired two U.S. insurers — TIG and Crum & Forster. Both were disasters and led to seven long years of dismal results for Fairfax.
Why he’s like Buffett: Watsa, too, is a value investor. And just as Buffett has built his empire around Berkshire, which is primarily an insurance company, Watsa has built his empire around Fairfax, which is also an insurance company.
Why he’s NOT like Buffett: Watsa is comfortable with far more debt and much higher risk levels than Buffett has been. Case in point: Watsa’s ill-advised U.S. acquisitions. From 2004 through 2006 some investors questioned whether Fairfax could survive.
What he’s doing now: Watsa believes we are in the early stages of a massive unwinding of debt. He is preparing his company for a once-in-a-century financial storm. He has 80% of Fairfax’s portfolio invested in ultra-safe treasury bills and government bonds. “Prolonged periods of prosperity lead to leveraged financial structures that cause instability,” writes Watsa. “We are witnessing the after effects of the longest economic recovery (more than 20 years) in the U.S. with the shortest recession (2001). Regression to the mean has begun — but only just begun!”
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