The Trustees believe so and we agree with them, with one crucial stipulation: You must ﬁnd the right manager. This is not so easy. In his annual meeting this year, Warren Buﬀett discussed the problems involved in ﬁnding investors who could actually beat the market. He said it was “very diﬃcult”. If Buﬀett has trouble ﬁnding “market beating investors”, perhaps it is not surprising our own Trustees are having the same problem.
After many years of managing Berkshire’s investments on his own, and a few years of searching, Buﬀett hired two money managers, Todd Combs and Ted Weschler, whom he is so far very happy with. He hasn’t turned over all the assets of Berkshire to these two. Instead, he started them oﬀ with a small percentage of Berkshire assets. As they have proven themselves, he has given them more money to manage. Today they manage twenty-one billion dollars and are paid a yearly salary of one million each. That’s the amount they make for “just showing up for work”. Of course, if they beat the market by a large margin, Buﬀett will give them a huge bonus.
If Buﬀett paid his two investors at the same rates the AFM-EPF is paying ours, they would each be making $77,000,000 a year ($154,000,000 total), just for showing up to work. It is hard to imagine a realistic scenario where these two guys could do well enough that Buﬀett would write them a check for these amounts, even as a bonus.
If the Trustees are serious about ﬁnding a truly market-beating money manager, they should emulate Buﬀett’s approach. Or they can just hire Warren. Anyone can get Warren Buﬀett to work for them by the simple expedient of investing in Berkshire Hathaway Stock.10 If the AFM-EPF had ﬁred all its money managers after the 2008 meltdown and just invested in Berkshire, we estimate the Fund would have between $4-$5 billion today. They would also have beneﬁted from the enormous diversity of today’s Berkshire Hathaway and the huge cash cushion it provides.
10Disclosure: The authors are Berkshire shareholders.