With an estimated net worth of $80 billion, Warren Buffett recently qualified as the third wealthiest individual in the world. This wealth was created through an investment philosophy that appears relatively straightforward at first glance. In its basic form, it consists of investing in a successful company at a reasonable price and with the mindset that the position will be held forever. (For more on Warren Buffett, Warren Buffett: How He Does It.)
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The reality is that Buffett has a knack for valuing companies and understanding investor psychology that few will ever match. A number of investors have come close though, and with a few more years of market-beating returns under their belts, could end up being considered the next Warren Buffett. Below are profiles of five individuals that are on their way to becoming Buffett's heir apparent.
Mr. Combs is about as close as one can come to becoming the next Warren Buffett because he was hired personally by Buffett. Combs was first introduced to the public in an October 25, 2010 press release from Berkshire, in which Buffett stated he and sidekick Charlie Munger had "been looking for someone of Todd's caliber to handle a significant portion of Berkshire's investment portfolio."
At the time of the press release, Combs was 39 years old and came from private equity firm Castle Point Capital where he had been running a hedge fund that was seeded with an estimated $35 million in initial capital. Before he left, the fund was heavily weighted toward financial stocks and had performed well during the financial crisis. In 2008, his fund fell about 5% while the market overall fell roughly 37%.
Hedge fund manager William Ackman might have been interested in working directly for Buffett were it not for the fact he is only 44 and already sitting comfortably as a well-known and highly compensated hedge fund manager. His wealth creation came from co-founding and co-managing capital for Gotham Capital and more recently through the founding of Pershing Square Capital Management in 2003. Pershing currently manages in excess of $9 billion.
Pershing has posted Buffett-like returns since its founding, returning 24% annually according to one source. Ackman is also comfortable taking large, concentrated positions in the companies he likes, which is also similar to Buffett's style as an earlier investor. He differs from Buffett given his activist philosophy and agitating for change and inefficiently run companies, and is also quite comfortable shorting positions he doesn't like.
Thirty-three year old Mr. Biglari is far from a household name but quickly became known by taking control of casual dining restaurant firm Steak 'n Shake back in 2008. Two years later he changed the company's name to Biglari Holdings and has since embarked on an acquisition spree that includes the purchase of Western Sizzlin, as well as Biglari's investment fund.
Biglari's style is modeled after Buffett's and includes presiding over a public company, an annual shareholder letter, interest in acquiring insurance businesses to take advantage of their investment capital, and his own official sidekick by the name of Phil Cooley. Biglari Holdings has a current market capitalization of $470 million and since it is public, Biglari's moves are easy to track.
Back in June, Forbes magazine profiled a father and son team that manage the Bruce Fund, a mutual fund that runs close to $300 million in assets and has posted Buffett-like returns of around 18% annually over the past decade. Robert Bruce is the elder statesmen of the fund at 79 and his son Jeffrey is around 50.
Similarities to Buffett include a go-anywhere style that allows freedom to choose compelling investments, be they small-, mid-, large-cap or asset classes other than stocks that include corporate bonds. The fund is also very patient and willing to wait out an investment thesis to come to fruition. The Forbes story cited loyalty to Amerco through its ups and downs after it came out of bankruptcy in 2003. Amerco is better known for its U-Haul franchise of renting hauling trailers.
Zeke Ashton, 41, founded Dallas-based Centaur Capital Partners in 2002 and has since averaged annual returns of 16% for Buffett-like returns that are well ahead of the market. Centaur is a hedge fund and recently managed approximately $200 million in assets.
There are many similarities to Buffett's investment style that include a value-based and patient philosophy where Centaur is willing to wait three to five years for a position to pan out. It is also concentrated by most measures, with an average position size between 25 and 35 on the long side and an additional 10 to 15 ideas on the short side. And like the Bruce Fund, it employs a go-anywhere style.
The Bottom Line
Fund managers and company owners that are able to grow capital greater than 15% per year over a long time horizon will end up accumulating fantastic wealth for their partners and shareholders, respectively. Buffett's Berkshire Hathaway has succeeded in growing book value at a 20.2% annual clip for shareholders between 1965 and 2010 for a 35 year track record that may never be beat. The above investors have logged impressive track records over the past decade or so. With a few more decades of market-beating performance, history may judge them as the next Warren Buffett. (If you would like to invest like the Warren Buffett, read What Is Warren Buffett's Investing Style?)
Disclosure: At the time of writing Ryan C. Fuhrmann was long shares of Dell and HP but did not own shares of any other company mentioned in this article.