Warren Buffett has been heavily criticized in recent weeks and months. Sometimes it was the sale of airline shares at an unfavorable time or the hoarding of cash and the non-use of the corona crash. Even now that the Omaha oracle has started to invest, there will certainly be critics who criticize the timing.
Now the circle of those who have the handlebars behind Berkshire Hathaway (WKN: A0YJQ2) approach, expanded again. A seemingly successful hedge fund manager has recently said that Warren Buffett would not get a job in the hedge fund world.
Fortunately, one of the richest people on our planet doesn’t need that either. But let’s take a look below at where this criticism lies. And whether the criticism is ultimately justified or misses the target.
No job for Warren Buffett!
More specifically, it was Sir Paul Marshall who commented critically about Buffett and said that Warren Buffett could not get a job in the hedge fund world. Paul who? A good question: in any case, this is a hedge fund manager behind Marshall Wace. And is even one of the co-founders.
However, according to a report by The Times newspaper, there is little chance that the Omaha oracle could cheer on a hedge fund. Forgive me for one of the top hedge funds. A crucial key figure is decisive: the shape ratio. Warren Buffett would have failed on this for quite some time.
The shape ratio measures the excess return compared to the risk taken. Quite a strange metric, but let’s just keep playing the game: top hedge fund managers would come up with a shape ratio of 1.5, although Marshall couldn’t ignore the fact that his own wealth manager was not mentioned. Warren Buffett, on the other hand, would have a value of just 0.7. Oh scary!
Warren Buffett will therefore never be able to join Marshall Wace, as Sir Marshall concluded. But seriously: what’s the point of such a criticism ?!
The key figure that really matters: Yield!
The time of Warren Buffett bashing continues accordingly, and hedge fund manager Marshall has taken advantage of the hour to top it off. It doesn’t seem surprising. However, the means are comparatively questionable.
The shape ratio should be a key figure that either does not hit the target or goes beyond it. The bottom line is to judge a number that is significant for Warren Buffett’s success. Or even a hedge fund manager: the return that has been achieved over years and decades. After all, that is the success meter that matters to investors.
As we can see from Marshall Wace’s further reputation, the asset manager has in the past few years and decades only achieved a performance that is roughly half that of Berkshire Hathaway. This shows that the bottom line is that Warren Buffett beat Marshall. Just not with a key figure chosen by the hedge fund itself that is interpreted in any context.
I guess Warren Buffett doesn’t mind that he won’t get a job at Marshall Wace. However, the reverse should also apply: the focus on figures such as the shape ratio and the comparatively poor performance should be an indicator that Marshall will not get a job at Berkshire Hathaway either. Also because different approaches are emerging here. Especially when it comes to measuring success.
Focus on the essentials!
The bottom line, however, is not about who gets which job. No, I am concerned with factual criticism of the Oracle of Omaha: The shape ratio is not a key figure to measure the success of Buffett or Berkshire Hathaway. No, that remains the return. And not the return over short-term weeks or months. But over years and decades.
Historically, Buffett has delivered above-average performance of 20% a year or more. The next years or decades will show whether the Omaha oracle can continue on this successful path. For Berkshire Hathaway investors, that’s the only thing that matters.
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Vincent owns Berkshire Hathaway shares. The Motley Fool owns and recommends shares of Berkshire Hathaway (B shares) and recommends the following options: Short September 2020 $ 200 call on Berkshire Hathaway (B-Aktien), Short January 2021 $ 200 put on Berkshire Hathaway (B shares) and Long January 2021 call $ 200 Berkshire Hathaway (B-Aktien).
Motley Fool Deutschland 2020