The ‘Next Warren Buffett’ Curse Isn’t Always Fatal

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A couple of months ago, crypto billionaire Sam Bankman-Fried was peering out from the cover of Fortune magazine above the words “The Next Warren Buffett?” Now he’s at the center of a spectacular financial collapse, with a net worth estimated by the Bloomberg Billionaires Index at zero when I checked last.

Less spectacularly — and much less disastrously for those who entrusted their money to him — venture capitalist and “SPAC king” Chamath Palihapitiya announced in September that he was closing his biggest special purpose acquisition company and one other and returning $1.6 billion to investors, 20 months after describing in a Bloomberg interview how he envisioned himself taking over the Berkshire Hathaway chairman’s “mantle” with a “Berkshire-like instrument that is all things, you know, not to sound egotistical, but all things Chamath, all things Social Capital.” Guo Guangchang, who said in 2014 that he aimed to build his Shanghai-based conglomerate Fosun International Ltd. into a “Buffett-style investment company,” is in the midst of an apparent fire sale as he seeks to raise money for debt payments. Finally — and this admittedly may be stretching it, given that my sources are some guy’s LinkedIn post and an article at Yahoo! Finance Canada — tech investor Cathie Wood earned some “next Warren Buffett” praise in 2021, and her ARK Innovation fund is down 65% over the past year.

Chalk up four more victims of what’s been called the “next Warren Buffett” curse — perhaps the most prominent since the fall from grace, if not from billionaire status, of Eddie Lampert Jr., who was featured on the cover of Businessweek in 2004 (before it was Bloomberg Businessweek) accompanied by the same “The Next Warren Buffett?” cover line as Bankman-Fried.

As someone with a bit of chastening experience with the genre (I referred to soon-to-flame-out CMGi as “the Berkshire Hathaway of Net investing” in the pages of Fortune in 1999), this got me wondering. Why would any journalist still use such language to describe an investor, knowing how quickly it could turn into an embarrassment? And why would any investor court such comparisons?

Part of the answer, of course, is that journalists can be shortsighted, and professional investors can be egomaniacs. But after digging through several decades of next-Warren-Buffett media references, I also learned that such comparisons don’t have to be a curse. Those who were compared to the Oracle of Omaha because their investing approaches resembled his often did just fine. None became the next Warren Buffett — he’s still running Berkshire Hathaway at age 92, after all — but they didn’t crash and burn, either.

By Buffett’s approach, I mainly just mean the patient value investing that he learned from money manager and Columbia Business School adjunct professor Benjamin Graham. Buffett frequently touted the success of other Graham disciples and even anointed one of them as a successor when he decided to wind down his investment partnership in 1969.

That sort of makes William Ruane the first “next Warren Buffett,” although I don’t think he was ever called that. Ruane, five years Buffett’s senior, started the Sequoia Fund in 1970 at Buffett’s urging, and $10,000 invested in the mutual fund at its inception was worth almost $1.9 million when he died in 2005, three-and-a-half times what an equivalent investment in the Standard & Poor’s 500 Index would have generated. In the meantime, of course, Buffett had transformed one of his partnership’s holdings, textile manufacturer Berkshire Hathaway, into an investment vehicle that multiplied $10,000 in 1970 into about $20 million at the end of 2005. Also, Sequoia’s performance has slightly trailed the S&P 500 since 2005, in part of because of a misplaced wager in the 2010s on a company billed as an “early-stage Berkshire.” Ruane wasn’t the next Warren Buffett. But he wasn’t a bad bet.

The same goes for most of the dozen young investors profiled in an October 1989 Fortune article headlined “Are these the new Warren Buffetts?” — the earliest such piece I came across in a search of Google and several news databases. Value-oriented hedge fund manager Seth Klarman has probably had the most lasting success and earned the most comparisons to Buffett over the years, with Buffett himself reportedly saying that if he ever retired he would want Klarman to manage his money, but other familiar names in the article include short seller Jim Chanos, the late activist mutual fund manager Michael Price, television star Jim Cramer and none other than Lampert, who certainly lived up to expectations for the next decade and a half.

Leucadia National Corp. also held up perfectly well after being the subject of a July 1995 Forbes article headlined “Another Berkshire Hathaway?” At the time, the share price of the conglomerate run by Ian Cumming and Joseph Steinberg had risen more than 300-fold in 16 years. From 1995 through 2012, when Cumming and Steinberg handed over the reins to Richard Handler, whose Jefferies Group Leucadia had bought, the rise was nearly fivefold — which still beat the S&P 500 and was close to Berkshire’s performance. Along the way, in 2009, Leucadia entered into a commercial mortgage joint venture with Berkshire called Berkadia.

Several corporations or investors outside the US that have been compared to Berkshire and Buffett because they combine disparate cash-spewing businesses or make productive use of insurance float or both also don’t seem to have been destroyed by the curse, although they haven’t always been the greatest investments. In Canada, there’s Prem Watsa’s Fairfax Financial Holdings and Jim Pattison’s Pattison Group Inc.; in Europe, there’s the late Albert Frère’s Groupe Bruxelles Lambert and the Agnelli family’s Exor. “India’s Warren Buffett,” Rakesh Jhunjhunwala, died a multibillionaire this summer. The “Berkshire Hathaway of Australia,” Stonehouse Corp., recently landed an investment from Berkshire’s vice chairman, Charlie Munger. I’m surely missing a few.

Such investment vehicles can still run into trouble, of course. With Guo’s Fosun it seems to have come from ignoring Buffett’s warning to never borrow money to buy stocks. With Lampert, who drew the comparison to Buffett in 2004 because he seemed to be using retailer Kmart as the core of a new Berkshire-like investment entity, it was the decision to double down on struggling retailers and spend the next decade and half trying and failing to revive Sears. I think the jury is still out on hedge fund manager William Ackman, who was described as a “Baby Buffett” on the cover of Forbes in 2015 as he made the shift to a publicly traded entity, Pershing Square Holdings, that underperformed the market for its first few years but has actually done quite well lately.

The cases where you can be almost sure the “next Buffett” curse will hold are ones where the resemblance is obviously only superficial. I haven’t been able to find the 1995 Fortune article that reportedly labeled 30-year-old California money manager Christopher Bagdasarian the “next Warren Buffett,” but from the news reports that followed when he was charged with securities fraud in 1996 I gather that this was based only on the 29% average annual returns he reported, which turned out to be made up. CMGi (the CMG stood for College Marketing Group, and it had started out as a seller of mailing lists to educational and professional publishers) assembled a portfolio of money-losing internet companies that zoomed in market value during the dot-com boom of the late 1990s but was clearly very high risk. I was not the only one to compare it and its chief executive officer, David Wetherell, to Berkshire and Buffett, and I used the phrase “Berkshire Hathaway of Net investing” as easy-to-understand shorthand, not endorsement, but I remember cringing a little when I wrote the words and certainly wish I hadn’t. I’m sure Ackman wishes he hadn’t referred to pharmaceuticals maker Valeant as a “very early-stage Berkshire” in 2015 simply because it was so good at making acquisitions. Blowback over accounting practices and drug pricing soon sent the company’s stock price plummeting, dragging down the performance of both Ackman’s Pershing Square and the aforementioned Sequoia Fund.

Then there’s Bankman-Fried, for whom the Buffett parallel was that he’d been buying up failed competitors during crypto’s very difficult summer. From the Fortune cover-story Q&A:

A longtime crypto insider told me you’re going to come out of this looking like Warren Buffett — owning a lot, and everyone owing you a lot of favors. Do you think that’s overstating it?

I hope it’s not overstating it, though it might be.

It was overstating it! And it was thin evidence on which to compare SBF to WEB (Buffett’s middle name is Edward) to begin with. Which is why I don’t think Bankman-Fried’s fate is reason to fear that, say, Greg Abel — who according to the current Berkshire Hathaway succession plan truly is the next Warren Buffett — is cursed.

More From Bloomberg Opinion:

• Burned by Crypto? Don’t Learn the Wrong Lesson: Allison Schrager

• FTX’s Sudden Unraveling May Allow DeFi to Grow: Andy Mukherjee

• Active Managers Are Having a Moment That Won’t Last: Nir Kaissar

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. A former editorial director of Harvard Business Review, he has written for Time, Fortune and American Banker. He is author of “The Myth of the Rational Market.”

More stories like this are available on bloomberg.com/opinion

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