4 New CIO Candidates

Sat, 05/01/2010 - 23:45

See "Taking Stock" post - this has been updated.

Here's some context for the revelation that all four of the original candidates to run Berkshire's investment portfolio post-Buffett have been replaced.

Choosing the original candidates was very difficult. The people who nominated themselves mostly were not eligible or logical choices. Value investing managers with the best track records are long in years and near the end of their careers. Some of them are coasting on their reputations and the fees garnered from managing huge portfolios. They aren't good candidates to replace Lou Simpson.

The real candidates for this role were a) younger -- early 50s at most, b) not managing multi-billion dollar portfolios c) had shorter track records making survivor bias a more likely factor in their track records. All of this would tend to raise the odds that they would have to be replaced. So it isn't surprising that after a period of extraordinary market volatility this would happen. Berkshire shareholders are probably lucky that this decision is not being made during a period of predictaby rising markets of moderate volatility such as the mid 1990s or mid 2000s, which could lead to significant error. This has been a good road test to winnow out the weaker candidates.

  • ""
Sun, 04/17/2011 - 22:30 — tiffany pulseras

hold forever

Meanwhile, the biggest "sin" among value managers in recent years was to take Warren's statement that he wants to buy a great company at a good price and hold it forever too literally. The risk is that this leads to complacency. It is worth nothing that Warren usually refers to himself as a "capital allocator" not an investor. This implies that opportunity cost should never be far for the asset manager's mind.

Mon, 05/03/2010 - 12:06 — Anonymous

The CIO shortlist

Alice,

What is the source of the "revelation that all four of the original candidates to run Berkshire's investment portfolio post-Buffett have been replaced?" At the AGM, Mr Buffett did say that "it was not the same four" in 2009 as 2008, but that could simply mean one had changed -- and 3 of the 4 were unchanged. I believe he also said "the list of the four will move around."

I thought the far more interesting comment was by Mr. Munger, who said "we will get someone in on the investment side sooner than many people think" with "abilities that Warren lacks." What do you think that means? A guess:

1. Someone with international experience (Li Lu, who gave them BYD?)
2. A woman.

More interestingly, who do you think is on the CIO list of four (and who returned 200% in 2009 without leverage)? Again, a guess:
1. Chris Davis
2. Tom Gayner, Markel
3. Li Lu (and he may be the winner -- BYD was up 430% and he would have owned a lot)
4. ?

Mon, 05/03/2010 - 22:24 — aliceschroeder

not the same four

different people heard it different ways - you are right, it is possible that all four were not changed. my point is that change should be expected under the circumstances.

I haven't done research to figure out who returned 200% but suspect it was someone running smaller money. I do think very highly of Chris and Tom. They are also well along in their careers. One issue that Warren encountered is that some of these skilled and prominent managers have no real incentive to tackle this job. They like what they do already and feel a responsibility to their current clients. Someone at an earlier stage of the career, or lesser known, is more motivated and has fewer disincentives.

On Li Lu, it's almost inconceivable that Warren would consider someone based on their ownership of their own company's stock. He needs a capital allocator not an entrepreneur.

It's hard to be in Buffett's position. He's trying to do an honest job of choosing the person who is most likely to outperform him. For any human being that would be hard to do. I give him kudos for attempting it.

Tue, 05/04/2010 - 10:34 — Anonymous

CIO candidates

It is not that important, but Wang Chuan Fu is the CEO and founder of BYD. Li Lu is a portfolio manager (formerly Himalaya Capital, now LL Capital Partners and rumoured to be running money for Munger). Just to complicate things, Li Lu was the former "president" of the Student Congress on Tiananmen Square in June 1989 and escaped to the US. Which would make it pretty difficult for him to ever do business (visit?) in China.

Did you think Munger's comments about changes on the investment side "sooner than many think" was just a throw-away, or does it indicate more "BYD-type" investments or a new hire?

Sat, 07/31/2010 - 22:46 — admin

thanks for pointing it out

and it is important. Charlie says a lot of things, but see the Taking Stock post for more about why the inconceivable is, apparently, conceivable. It does sound as though something is in the works. yikes.

Sun, 05/02/2010 - 01:26 — The Lorax

Alice, Was there any comment

Alice,

Was there any comment at the meeting, or do you have any indication, about the basis for replacing the original candidates? Surely their quotational performance alone would not have caused them to be yanked. Back in the 1974 period, Charlie, for example, suffered huge quotational losses that later reversed, didn't he? Do you have any clue whether the original candidates sustained "permanent" losses that knocked them out of the running?

Sun, 05/02/2010 - 12:51 — aliceschroeder

basis for replacement

Charlie, & Ruane, had big losses in 70s and came back with stunning favorable reversals of fortune. Why, they bought bargain stocks that got cheaper then value won out.

Meanwhile, the biggest "sin" among value managers in recent years was to take Warren's statement that he wants to buy a great company at a good price and hold it forever too literally. The risk is that this leads to complacency. It is worth nothing that Warren usually refers to himself as a "capital allocator" not an investor. This implies that opportunity cost should never be far for the asset manager's mind.

I've heard all kinds of things, ranging from that there are no "four" managers - it's a necessary fiction - to now this Li Lu thing. I think it's fair to say that Warren Buffett will be hard to replace :-)

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