Buffett vs Singleton or how to be a better investor

[netnet]

At the Daily Journal meeting, Munger said (quote below) that Henry Singleton was smarter than Warren Buffett. Singleton was very rational, a truly excellent businessman, (one of the best ever) yet Warren was a way better investor. 

 

My question is for us mere mortals, what lessons do we draw from this? Singleton was a genius, as rational as a human can be, versed in the capital markets, unclouded by "conventional wisdom" yet Buffett really out paced him.

 

Once we quell our emotions, gain a circle of competence and behave rationally (admittedly 85% to 95% of the deal) how do you get to that last bit that allows Buffett to lap Singleton as if Singleton were Aunt Minnie? Munger hints that the question is important, but did not answer it!

 

 

 

...[singleton] was a totally rational human being in things like finance. What I found interesting about Henry Singleton, which has interesting educational implications, is that in watching both Henry and Warren invest and operate at the same time, we had two great windows of opportunity to examine human nature.

 

Henry was very rational. He was quite similar to Berkshire in some ways. Henry never issued a stock option. He had certain commonalities with Warren that were just logical outcomes.

 

What was interesting to me was how much smarter Warren was at investing money than Henry. Henry was born a lot smarter, but Warren had thought about investments a lot longer. Warren just ran rings around Henry as an investor even though Henry was a genius, and Warren was a mere almost-genius.

 

(Minor side note, Munger is, of course, going to think more favorably of his business partner of over 50 years and thus is talking his own book; additionally, he and Buffett disagreed with some of Singleton's transactions, but still, Buffett is the better investor. )

[orthopa]

Im not terribly versed in Teledyne but I would imagine some of this had to do with Buffetts ability to invest in many sectors/companies as well as structure or participate in favorable deals such as workouts, spin offs, sanborn map situation. Singletons circle of competence was maybe implied to be limited to his business and its sector.

 

Singleton did a lot of smart common sense things for his company but likely didnt have the ability to go through moodys manual and find stocks that were undervalued in many different sectors or find business qualities that made up a great business to make alot of money a

[Jurgis]

I believe Singleton's Teledyne had very similar performance to BRK - BRK just did it for longer time. See http://brooklyninvestor.blogspot.com/2013/10/is-next-teledyne-old-teledyne.html for possible numbers. Though it's possible to cherry pick early BRK years and then it outperforms TDY.

 

Munger might have been implying the longevity.

 

I think you are asking bad question though. If you manage to find next Teledyne and invest into it, you'll become very rich. There is no need to find the next BRK even if it would make you super rich.  8) Especially, since it's quite likely that there are Teledynes around, but quite possibly there won't be another BRK (as Munger has implied couple times). ;)

[netnet]

 

...Munger might have been implying the longevity.

 

I think you are asking bad question though. If you manage to find next Teledyne and invest into it, you'll become very rich. There is no need to find the next BRK even if it would make you super rich.  8) Especially, since it's quite likely that there are Teledynes around, but quite possibly there won't be another BRK (as Munger has implied couple times). ;)

 

Munger may have been implying longevity, but I think not.

 

But as to your second point. You misread my question.  Not how you find the next [fill in the blank] although that would be glorious, rather how to be a better investor, i.e. what did Buffett do for that extra 10 to 15% that enabled him to outclass Singleton. Once you are rational, apply yourself, have a circle of competence, etc. what else to do?  Perhaps Buffett was/is more focused on this than Singleton was. Thus was willing to go through every publicly traded stock from A to Z, repeatedly.

[wisdom]

Float!

[CONeal]

I'm just going off memory from reading Singleton's book but wasn't Singleton more deeply involved in the day to day operations of the company?  Whereas Buffett really isn't and thus can spend more time thinking about pure investments.  Singleton seemed to be more focused on the business first and the additions to his company had a focus of opening a new market in line with the existing business or a bolt on operation to the existing business.  Singleton seemed to focus on the investment side of the business when opportunities screamed at him.

 

  Whereas Buffett seems to focus on investments first and the business second.  Now his mangers may come to him with opportunities for bolt ons and such but I don't think he was actively looking at it from a pure business prospective.  He had several companies just for runoff to make money off them.  also another contributing factor is when you have people coming to you wanting to sell their company to him, he is going to control the price and provide a little padding that can make up the exceptional part of the outperformance.

 

Maybe I'm trying to mix Singleton with the 2000 version of Buffett but that is how I view the difference between the two.

[Guest Schwab711]

Buffett has an elite financial mind that's without peer in history. Buffett has proven to be elite at investing in both equities and fixed income (extremely rare!). I think he would also be considered elite in the IB/trading, banking, and of course, insurance. He has proven his elite ability as an IB, trading, investing, and head of insurance operations. We will probably never see another person as capable as him because he aged as each of these industries gained factors of complexity. His mark on financial regulations will be seen for centuries. I think the 5% - 15% was Buffett's ability to be the CEO of an insurance company, IB, and probably a number of other businesses at a moment's notice (literally, with Salomon Brothers). I don't think you can overstate how impressive Buffett's skills/knowledge are (and have been).

[undervalued]

I've only read the Outsiders and haven't really read the full book on Teledyne. I think everyone who post has a right answer. I think there are many variables that make Buffet a better investor than Singleton. His focus, float, moat, knowledge of multiple industries, stocks / bonds, personality, etc and probably he is going to live longer. He is lucky enough to find many giants (Ben Graham and Munger) early in his life also which opens up multiple doors for him.

 

The lesson here is probably you're not a genius, find some smart friends :P.

[Jurgis]

You misread my question.  Not how you find the next [fill in the blank] although that would be glorious, rather how to be a better investor, i.e. what did Buffett do for that extra 10 to 15% that enabled him to outclass Singleton. Once you are rational, apply yourself, have a circle of competence, etc. what else to do?

 

I doubt that you will learn how to be a better investor from Buffett vs. Singleton comparison.

 

First of all, both of them invested by buying whole businesses and running them. Are you going to do this? If so, then, yeah, probably your question is valid. But for most here, we won't buy whole businesses and run them, which kills half of Buffett's performance and almost all of Singleton's. Also IMHO, Singleton was more looking at how to run a great successful business, even if he also did great financial engineering, instead of looking to invest/compound at the best rate for longest.

 

Second, like others have said, both Buffett and Singleton are genius' level. This is something that you can't achieve by just doing something. Sorry to say, you either are or are not. You can get OK/great returns even if you're not, but you can't do things that are "obvious" to them, while they are not to us.

 

There are other things that are mostly connected to the first two points. Like someone said: float (connected to point 1).

 

Some points that might be possible to learn/replicate: networking. Of the top of my head, I think Buffett is better in networking than Singleton was. And focus on investments/return rather than on business. Though that should not be misconstrued as short term thinking or return chasing.

 

(In other words: does it make sense to ask how Buffett outperformed Gates (which he might not ;)) and what can we learn from it. I think that would also be a wrong question to ask  8) )

 

Take care

 

[CalvinL]

 

...Munger might have been implying the longevity.

 

I think you are asking bad question though. If you manage to find next Teledyne and invest into it, you'll become very rich. There is no need to find the next BRK even if it would make you super rich.  8) Especially, since it's quite likely that there are Teledynes around, but quite possibly there won't be another BRK (as Munger has implied couple times). ;)

 

Munger may have been implying longevity, but I think not.

 

But as to your second point. You misread my question.  Not how you find the next [fill in the blank] although that would be glorious, rather how to be a better investor, i.e. what did Buffett do for that extra 10 to 15% that enabled him to outclass Singleton. Once you are rational, apply yourself, have a circle of competence, etc. what else to do?  Perhaps Buffett was/is more focused on this than Singleton was. Thus was willing to go through every publicly traded stock from A to Z, repeatedly.

 

I think longevity of the performance is part of the answer, but what gives Buffett's performance such longevity?

 

I would argue that Singleton was just as focused in the capital allocation game. His partner George Roberts was the one who focused on the day to day management. Teledyne had positions in insurance businesses and they had a slightly different version of Birkshire's "Float".

 

I think it comes down to Buffett's business reputation. Over the years he carefully crafted a "fair and friendly" capitalist image, and Birkshire a "happy business family". Stories like Rose Blumkin and a series of friendly business deals definitely helped. And reputation is another thing that compounds.

 

A lot of times he even gets good businesses presented to him. He was able to gain trust and owners don't have to worry about things like business relationships and family control issues after selling the company to him. Boards and companies aren't scrambling to install poison pills if Buffett buys up their shares.

 

On the other hand Singleton seemed to prefer to keep his cards close to his chest. His deal making ability was, i would argue, even better than Buffett's. He was very rational but lacked a bit of "human touch". His communication style with the public and even with his own investors were "delphic" and ambiguous. It was as if he was playing mind games with his own investors so that they would tender him teledyne's shares for cheap. 

 

Knowing that, if you have a great family business you have to sell, would you rather sell it to Buffett or Singleton, if both were giving you similar offers? I'd just pick the one I trust more.

[Crip1]

I

The lesson here is probably you're not a genius, find some smart friends :P .

 

 

That's why I am a member of this board.

 

 

-Crip