A long time ago NYT writer Austan Goolsbee had a thing for Warren Buffett, and for Berkshire Hathaway. In a “moment of weakness,” he bought one Class B share of BK. Oh, what a beautiful, moving, fulfilling day that was. One for the books, as they say. Why did he do it? Because he believed in Mr. Buffett and in Berkshire Hathaway, a “mutual fund but without the bad incentives.” Buffett was this great, wonderful man in Goolsbee’s life, who didn’t do things at the expense of shareholders. If one person, a God among plebes had the ability to beat the market, it was the beacon of light shining bright from Omaha. But you know how these things go: to shit.
Well, I still own that share, but it hasn’t worked out as well as I had hoped. My share has underperformed the S.& P. 500 since I have owned it. My colleagues have mocked me incessantly, but I have remained a closet romantic, hoping that Mr. Buffett would renew his secret formula and prove my colleagues wrong.
From there, it’s downhill, and fast. One minute you’re picking out curtains, the next it’s, “No, those in fact are not my underwear, and I’d be interested, thrilled even to know who they belong to.”
Then I found out that the 76-year-old Mr. Buffett had asked for applications from people wanting to become his successor. Many hundreds applied. So at the annual shareholders’ meeting in Omaha this month, he announced his new search strategy: rather than decide from old-style résumés and interviews, he planned to choose three or four top candidates and then give each $5 billion or so to manage and see how they do. The winner gets the job.
When I heard about this, the romance died. For all of Mr. Buffett’s reputation as the ultimate nonmutual fund, he may have just fallen into one of the biggest mutual fund traps of all — forgetting how incentives affect fund managers’ behavior.
Then it gets ugly. Really ugly. Don ugly.
On the show, Donald Trump would fire someone from the team that earned less money, whether $1 less or $1 million less. That gave the contestants an incentive to do crazy things for the camera. But it’s no way to pick an investment manager.
The whole benefit of Berkshire Hathaway was that Warren Buffett’s investment choices weren’t driven by the kinds of crass manager-level incentives that seem to pervade the mutual fund business. By announcing he intends to pick a manager through a contest, Mr. Buffett will have transformed the ultimate nonmutual fund into something very much like a mutual fund. It’s a move straight from the playbook of The Donald himself.
In a show of support, Carney even considered withdrawing his application for a second, to send a message to Buffett that this is not how you treat people you love. (But then he remembered his boyhood dream of living in Omaha and decided against it. Can't really blame him, either).
‘The Apprentice: Omaha Edition,’ Starring Warren Buffett [NYT]