Warren Buffett’s next task: train a successor

Allister Heath
WHEN the times get tough, everyone turns to old favourites. This is especially true of investors, hence the renewed interest in two of the greatest names in finance. Anthony Bolton, Britain’s stock-picker extraordinaire, has come out of retirement to launch a new Fidelity China fund; and on Saturday Warren Buffett’s shareholder letter enthused his army of fans. Both men saw through the bubble and avoided the worst of its excesses; they are now reaping the rewards for their foresight and finding a fresh following among a new generation of investors seeking a prudent, mature stewardship for their wealth.

Buffett’s Berkshire Hathaway conglomerate’s book value jumped 19.8 per cent to $84,487 per share in 2009. At first sight, this wasn’t that spectacular. It was worse than last year’s 26.5 per cent rise in the S&P 500 – and in fact only the seventh year ever that Buffett has not outperformed the US stock market. Coming after 2008’s result, when the firm’s book value collapsed by over 9 per cent, the worst performance since Buffett took over at Berkshire’s helm in 1965, you might think shareholders ought to be losing patience with their hero.

Far from it: he may not be able to walk on water any longer but when his performance is compared to the rest of the market, Buffett remains miles ahead. In 2005, Berkshire’s book value rose 6.4 per cent, against 4.9 per cent for the S&P; in 2006 it was 18.4 per cent versus 15.8 per cent; in 2007 11 per cent against 5.5 per cent; and in 2008 -9.6 per cent versus -37 per cent.

Buffett has chosen to specialise in high-capital industries, such as railways and insurance; he also helped recapitalise Goldman Sachs in its hour of need and is now sitting on massive profits. His strategy, as ever, is counter-cultural, no bad thing given how prone ordinary mortals are to bubbles, cycles and the tyranny of the received wisdom. Buffett, however, is an investment genius, a towering figure whose record remains unmatched.

Yet it remains to be seen whether he can pull off the ultimate trick and pass on his skills, experience and intuition to a successor. David Sokol, one of his top executives, would like to become the next Sage of Omaha. Only time will tell whether Buffett can clone himself or whether he was a one-off.

It is often said of David Cameron that he is at his best when his back is against the wall. With the polls narrowing sharply, and the outcome of the general election now completely up in the air, he desperately needs to regain control. His main problems have included the lack of clarity of his party’s message, a bizarre absence of urgency, an inability to express clearly and simply how Britain would be any different under Tory rule and – for many readers of this newspaper – a growing feeling that the Tories are even more anti-City and anti-capitalist than Labour. There is widespread disenchantment with Labour but little real enthusiasm and only lacklustre support for the Tories among London’s business community.

Cameron’s fightback didn’t take long: his speech yesterday struck a more optimistic note and will have reminded all those who listened that he is not to be underestimated. But while a marked and encouraging improvement, Cameron still has a lot more work to do. But what I believe doesn’t matter – it is what the electorate thinks, which is why City A.M. will shortly be launching a revolutionary new daily poll to gauge opinion among the one constituency the politicians are not interested in courting -- London's business and financial community.

The aim is to find out what those who work in the City, Canary Wharf, Mayfair and all of the other business districts really think. We have teamed up with PoliticsHome.com, Westminster’s most influential news site, to create a unique daily poll (see page 6). PoliticsHome already produces a daily five-question, 1-minute BlackBerry and iPhone compatible survey for Westminster policymakers; we will be doing the same for those who work in business and finance.

Readers should fill in the form in strict confidence at www.cityam.com/panel. When the poll launches, we will be reporting on its findings daily, revealing what the City really thinks – and letting the politicians know, loud and clear. Do sign up.