The Warren Buffett Way, + Website, 3rd Edition

Chapter 8

The World’s Greatest Investor

He is often called the world’s greatest investor, but how do we know for sure? How exactly would one go about determining such a claim? It seems to me all we need do is look at two simple variables: relative outperformance and duration. Both are needed. It is not enough to just beat the stock market over the short run. Countless people have done that at one time or another. Doing so over a long period of time is what counts. As Michael Mauboussin aptly describes in his book The Success Equation (Harvard Business School Press, 2012), there is a measure of both luck and skill in business, in sports—and in investing. And the only way to distinguish whether luck or skill prevails is by examining the results over time. Luck may play a role in the short run, but Father Time will let us know whether skill was involved. Here Buffett is unmatched.

Warren Buffett’s career managing money spans nearly 60 years. It is divided between the time he managed the Buffett Investment Partnership, Ltd. (1956 to 1969) and the much longer period of managing Berkshire Hathaway, starting in 1965, the year he took control of the company.

At the relatively young age of 25 with a relatively small amount of money (his own investment was only $100), Buffett started his partnership. Although the objective of the partnership was to generate at least a 6 percent annual return, Buffett set himself a much tougher goal: to beat the Dow Jones Industrial Average by 10 percentage ...