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Strategies & Market Trends : Value Investing
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To: Graham Osborn who wrote (60384)4/13/2018 4:08:20 PM
From: Graham Osborn  Read Replies (2) of 78745
 
One other thing I noticed on Fairfax is that, since 1992, Berkshire has actually outpaced them in growth in book value per share. Poor Prem just can't keep his hand off the share issuance button (over the same period, Fairfax's float has risen nearly 400% while Berkshire's has risen about 40%). When you consider that Berkshire's sh equity at the start of the period was almost 100X Fairfax's, you start realizing that Buffett is just destroying Watsa on a comparative performance basis. The irony is that it's not simply that Buffett is a better investor than Watsa - although there may be some evidence of that. I think the even more important factor is that Watsa is not nearly as shareholder-oriented as Buffett due to the fact that a good chunk of his compensation comes from management fees from Hamblin Watsa. Watsa is therefore incentivized to grow assets even at the expense of shareholders. Don't get me wrong - he has bowed to that pressure far less than 99% of corporate America. But it is an excellent illustration of Munger's principle that misaligned incentives nearly always weigh on performance - making it hard for active managers to outperform the indices. Buffett let's other people rides side-car with him because he thinks it's fun - but he walks in the shoes of shareholders.
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