Warren Buffett’s brilliant bets

This BBC podcast is supported by ads outside the UK.

Who drives the world forward? The one with the answers, or the one asking the right questions? At Aramco, we start every day by asking how.

How can innovation help deliver reliable energy to the world? How can technology help develop new materials to reshape cities? How can collaboration help us overcome the biggest challenges?

To get to the answer, we first need to ask the right question. Search Aramco Powered by How.
Aramco is an energy and chemicals company with oil and gas production as its primary business.

The Berrys holiday sale is here from December 1st through 7th only. Lock down the lowest prices on classes for the entire year.
Gift yourself the best workout in the world at the best price.

Buy today at Berrys.com.

Hello, and thanks for downloading the More Or Less podcast. We're the program that looks at the numbers in the news and in life.
And I'm Tim Harford.

Today we mark the end of an era. The time has arrived where

Greg should become the chief executive officer of the company at your end and I want to... That's Warren Buffett.

He's just announced that he's going to step down as the chief executive of his company, Berkshire Hathaway.

Buffett is one of the richest people in the world world and is widely held up as the greatest investor who ever lived. He's also been remarkably critical of other masters of the financial universe.

I had a chat with journalist Robin Wigglesworth from the Financial Times, who's the author of the book Trillions, to understand whether Buffett's reputation as an investment genius stands up to scrutiny.

Just give us a brief history of Buffett's company, Berkshire Hathaway.

Warren Buffett was already a very successful investor in the 50s and 60s, actually, but the big turning point came when he acquired a sort of a mid-sized textile manufacturer called Berkshire Hathaway in 1956.

He took it over and managed the business, but also turned it into an investment conglomerate, essentially. He used the company as a holding company for all the other investment bets he made.

And today, that is a trillion-dollar investment conglomerate that owns big stakes in everything from Coca-Cola to Saze Candies and

one of America's biggest railway companies. Berkshire Hathaway gave Buffett a vehicle with which he could make massive investments but that's hardly unique.

What did he do that gave him this stellar reputation as an investor?

Well, basically kick ass for, you know, multiple decades. I mean half a century really.

I remember reading once a book about how Tolkien kind of defined fantasy figures figures in the minds of the public.

Like after he wrote about Gandalf, wizards were kind of old men with hats and staves. And after Warren Buffett, these kind of crystallized what investing is.

So he basically buys stocks, he holds them for a long run, he reads balance sheets, he figures out what's going to be good, and then he

generally has more winners than losers. And over the years, he's compounded just fantastical sums of money.
And that's why, you know, he's one of the wealthiest people in the world.

And by far, the person who's probably made the most money out of the world of money in history. So he is enormously rich.
He's enormously successful.

And he's done it in a way that seems strangely old school. It's not reliant on algorithms or trading by the nanosecond or anything like that.
In principle, he's doing what anybody could do.

He's just doing it very well. Exactly.
I mean, I think maybe that's kind of the magic of Warren Buffett, that everybody thinks that maybe I could do what he does.

Because essentially, he studies companies, he reads their public accounts, and he buys sometimes the entire company, which might be tricky for you and me, or just a slice of them in the stock market of companies he thinks that will do well.

And it's just kind of good judgment compounded over an extremely long period of time and minimal amount of real flubs.

Like everybody messes up, including Warren Buffett, but he has had fewer really costly errors than anybody else, really.

So is it fair to say that the secret of his success basically is he picked the right stocks and he held on to them for a long time?

And if you're able to do that, which is enormously harder than it sounds,

then you too would be Warren Buffett. Yeah.
I mean, that's basically you summed up roughly a thousand books on investing strategies quite quickly there.

But yes, I mean, that's exactly what he basically embodies. He's been very critical of

clever stockpickers, which is odd because he's a clever stockpicker. So, why has he been such a critic of people who, at least superficially, seem to be like him?

He's always been very critical of his own profession. He sees most people in the investing world as kind of scamming a living.

It's not that they aren't honest people or good people maybe doing a valuable job, but he thinks that in reality, most of them do a very bad job and they charge way too much money for doing so.

And he's been pretty firm on that view ever since the 60s and 70s.

This leads to the story of a very big bet. You see, a particular target of Buffett's score were hedge fund managers.

These are the modern masters of finance who, rather than the folksy invest long term in strong companies, mantra of Buffett, use all kinds of financial wizardry to make huge amounts of money on the markets often on very short-term fluctuations by the 2000s hedge fund managers such as George Soros and Ken Griffin had helped create a kind of mythical status around them as if they were able to summon money from the markets at will Basically, Buffett thought it was a myth, that a lot of these people actually do a mediocre job at best and charge tons of money for doing so, so he offered to bet a considerable sum of money against any group of hedge funds, against the entire US stock market.

He thought the US stock market would beat any major group of hedge funds over a 10-year period. So just to be clear, he wasn't saying I, Warren Buffett, can do better.

He was saying the stock market as a whole, the SP 500. Exactly.
He wasn't pitching Butch Hathaway against the hedge funds.

No, he was literally pitching the cheapest, most boring, most plain vanilla thing you can imagine in the investing world against the highest octane, the most aggressive, the most brilliant, the best paid fund managers in the world.

In 2007, with the world's economy teetering on the edge of a big downturn, one hedge fund manager, Ted Sidies, decided to take on Buffett's bet.

To be precise, Sides was actually a manager of funds themselves investing in numerous hedge funds.

Buffett and Sidies each chipped chipped into a fund that would 10 years later be worth a million dollars to go to the charity of the winner's choosing.

Buffett would win if the stock market outperformed the super smart hedge funds after fees over 10 years. Otherwise, Ted Sides would win.

At the start, you know, frankly, Ted Sidies thought Warren Buffett had made a dumb bet. He just thought the stock market was going to go down a lot because of the looming financial crisis.

And he was right. He nailed it.
So, for the first few years, it looked like Saides had played a blinder. But over time, over the 10 years,

the compounding effect of the stock market where you own everything, you own the bad stuff, but you also own all the good stuff. It just did better and better and better.

And frankly, in the end, Sides had to throw in the towel a year earlier just to see that there was no way that he was going to win the bet.

So, Warren Buffett is 94 years old. He was running Berkshire Hathaway for 55 years.

He has stepped down, I think understandably.

Who is going to be the next Warren Buffett? Or is that a false question? Will there never be another Warren Buffett?

No, I don't think there will be.

For a host of reasons. There will be other famous investors that we laud.

But I suspect nobody will have his track record, both in size and just the longevity of it. I mean, it is astonishing.

I understand, at least this is according to Berkshire Hathaway's calculations, that if you had invested $1

in the S ⁇ P 500 index when Warren Buffett began 55 years ago, that $1 would now be $390,

which is impressive. But if you had put the same $1 into Berkshire Hathaway, Buffett's fund, it would now be worth $55,000.

It's staggering.

Thanks to Robin Wigglesworth from the Financial Times. That's all we have time for this week, but if you want to get in touch, please send us an email to more or less at bbc.co.uk.

We will be back next week, and until then, goodbye.

Who drives the world forward? The one with the answers or the one asking the right questions? At Aramco, we start every day by asking how. How can innovation help deliver reliable energy to the world?

How can technology help develop new materials to reshape cities? How can collaboration help us overcome the biggest challenges? To get to the answer, we first need to ask the right question.

Search Aramco powered by how.

Aramco is an energy and chemicals company with oil and gas production as its primary business. This is Bethany Frankel from Just Be with Bethany Frankl.
Let me tell you something. Most dog food, scam.

Kibble, trash, garbage, and there are so many bad ingredients. I prefer to not put ultra-processed junk in my body.
So why would I want to give that to my furry babies, Biggie and Smalls?

Fun, beautiful fact. My former dog lived to 18.

So my dogs love just fresh from just food for dogs. It is real food.
It is made with human-grade ingredients, balanced, healthy, and here is the kicker. It's shelf-stable.

You can throw a pouch in the purse in the car in a weekender bag, and your furry friends eat fresh wherever you are. You will notice the difference.

Biggie and smalls have shinier coats, more energy, and at mealtime, forget it. Tails wagging like lunatics.
And I don't have to stress about preservatives or fillers.

It's the only fresh dog food that actually fits into my life. No cooler, no fridge, no gross messiness, no problem.
Just fresh, try it, and you tell me I'm wrong.

Go to justfoodfordogs.com and get 50% off your first order. No code needed.
Just do it now. Justfoodfordogs.com.