Warren Buffett, the billionaire chairman and chief executive of Berkshire Hathaway Inc., is known as one of the most brilliant investors who ever lived.
His style of investing is also ruining the world economy by discouraging innovation, writes Robin Harding, columnist for the Financial Times.
“However much you admire the man, his influence has a dark side because the beating heart of Buffettism, celebrated in a thousand investment books, is to avoid competition and minimize capital investment in the real economy,” Harding says.
Buffett encourages the companies he owns to “build moats” around their business models to ward off competitors that will undercut prices or lure away customers in other ways. Buffett has been a long-term owner of companies like See’s Candies, Coca-Cola and Dairy Queen, and used to shun technology companies because of the danger of becoming obsolete (think Blackberry, Dell, Eastman Kodak, Sony or Yahoo). Only recently did Buffett buy into iPhone maker Apple.
“Buffett is brilliant at buying into monopoly profits, but he does not start companies or gamble on new ideas,” Harding says.
Berkshire’s holdings are hardly monopolies, and as Harding acknowledges, Buffett’s recent investments show more interest in regulated industries like electricity and railroads that have steady dividends.
“The ideal business is one that takes no capital, and yet grows,” Buffett said last year.
That kind of thinking isn’t good for the broader economy, Harding says, because it means less investment in technical innovation and improved productivity.
He cites Elon Musk, founder of electric car company Tesla, as a model entrepreneur (although critics say Tesla depends heavily on government welfare to survive).
“Elon Musk is investing in two wildly risky and competitive sectors: automobiles and space,” Harding says. “Even the much-reviled Koch brothers built most of their fortune on investment in the real economy. Celebrate that kind of business. It is the kind America needs.”
Separately, Buffett’s bid to double his stake in Home Capital Group Inc. was rejected by shareholders of the Canadian mortgage lender in a vote Tuesday, Bloomberg News reported.
Investors voted against the offer, which would have boosted Berkshire’s stake to 38 percent from about 20 percent. CIBC Asset Management had objected to the deal, arguing it would dilute the stock by selling shares to Berkshire at an almost 30 percent discount.
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