“A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.” Emerson’s line is so usually misquoted that we decided to do it justice here. Please note the “foolish” before consistency, as it makes all the difference in the world.
We’ve recently had the opportunity to do research on Buffett’s letters to shareholders beginning in 1959 (when Buffett managed Partnerships and Berkshire Hathaway was not even in his sights). His consistency and transparency are always impressive – especially in times like these and since we’re talking about more than 50 years of Buffett clearly practicing what he preaches.
Case in point: Berkshire Hathaway’s cash has been deployed in the last few years. He had always said that when him and Mr. Munger couldn’t find opportunities, they would rather do nothing than do “something stupid”. Well, it’s no coincidence then that the chart below reflects the crisis in the last 2-3 years. The “fat pitches” are finally coming in. Now Berkshire shareholders can look ahead and dream of what Mr. Buffett’s batting average might mean to future returns.
That said, in Berkshire’s case this consistency has two sides. Mr. Buffett has always said that Berkshire’s size is a constraint and that shareholders shouldn’t expect that he can replicate the decades of 20-25% annualized gains in book value per share. We should have every reason to believe this! The practical implication is a deal like Burlington Northern: an opportunity to deploy large amounts of cash at decent, if not stellar, returns. Remember 2005 and the PacifiCorp deal, when Berkshire subsidiary MidAmerican then deployed some US$ 9billion at a highly-regulated, stable business returning some 12-15% on equity.
Risking obviousness, consistency is desirable when one follows with discipline superior processes that generate desirable outcomes. We don’t think one can doubt that this is the case at Berkshire Hathaway.
Just a quick note regarding transparency: Buffett’s letters to his partners began as 2-page quick notes and later evolved to the tour-de-force format we read today. But even back in 1959 his objective was to let his partners know what he was thinking – he said that they had a right to know since they were trusting him with their money. We couldn’t agree more. First he talked the talk, and he’s been acting accordingly for over 50 years.