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12/5/2018 Why You Would Not Have Invested With Warren Buffett — Behavioral Value Investor<br />
Get Our Insights!<br />
• Buffett was focused on finding the most undervalued<br />
investments, which frequently led to him investing in<br />
small and unknown companies. In contrast many<br />
financial advisors and fund managers prefer to invest in<br />
well-known, blue-chip stocks, in part because clients<br />
are less likely to blame them if things go wrong.<br />
• He was focused on the long-term and on the<br />
comparison between price and the intrinsic value of<br />
each company rather than on what was going to<br />
happen in the next quarter or year.<br />
Why You Would Not Hav e Invest ed Wit h<br />
Warren Buffet t<br />
Let us suppose that you are an institutional investor<br />
representing a pension plan or an endowment. Would you<br />
seriously consider committing your organization’s capital<br />
with a seemingly quirky, young investor operating alone?<br />
What would your Board say? What would happen to your<br />
reputation if you were able to push through this<br />
unconventional decision and then something went wrong?<br />
On the other hand, even if things went well, would this<br />
decision really have enough positive impact on your career<br />
to justify the risk? For many, the principal-agent problem<br />
would be too hard to overcome, and they would settle on a<br />
more conventional choice of a bigger, more established firm<br />
operating more conventionally.<br />
Let’s say that you are an individual investor. You have a<br />
significant advantage over the institutional investor in that<br />
you do not have to contend with the principal-agent<br />
problem. You have nobody to answer to but yourself, and<br />
perhaps your spouse and dependents. However, you are<br />
probably used to the idea that investing a substantial amount<br />
of money with a manager should entitle you to frequent<br />
entertainment, fancy dinners and conversations with him<br />
whenever you desire. Perhaps you even think that you want<br />
to have input into how he invests your capital or veto power<br />
over decisions. Plus, shouldn’t your investment manager<br />
have some gray hair and wear a nice suit with a bow tie?<br />
Warren Buffett on the other hand made it clear that he would<br />
https://behavioralvalueinvestor.com/blog/2018/11/26/why-you-would-not-have-invested-with-warren-buffett 3/5
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