Has Warren Buffett’s Management Style Goosed Returns?

I've been reading The Warren Buffett CEO and there was an interesting chart about the yearly returns for Buffett, Peter Lynch, and Lou Simpson. I uploaded the data to Swivel (YouTube for data, as they call it) to play with the graphs, and something interesting struck me. Look at the graph below.

Buffett vs. S&P500

The one thing that has always nagged at me is whether or not Buffett's performance is statistically significant. I mean, someone has to be the best investor of all time by definition. While I agree he is sharp and his methods work, in general he has followed the market, but eked out larger gains.

Reading the book, many of the managers talk about how they love working for him and being a part of Berkshire. They have access to all the capital they need, Buffett doesn't bother them, they don't have analysts or press to deal with, they don't have to meet quarterly earnings goals, and they can focus on the long term. So what I am wondering… is it that – Buffett's management style – that has led to the extra gains?

Think of it this way. Buffett is a great investor, but so are a handful of other people. Is the thing that sets him apart, even above the other great investors, a few extra percentage points of return due to the freedom given to his managers? I don't know. I'm not saying yes or no. I'm just wondering what the rest of you think about it.

  • Doug

    I don’t understand the chart legend. What are we comparing here? What is “Investment Returns for Buffett, Lynch, and Simpson Buffett” and “Investment Returns for Buffett, Lynch, and Simpson S&P500”? It seems like we are talking about 3 different people but there are only two lines on the chart.

  • I think there is little doubt that a key part of Warren’s success is due to the way he runs BH. He not only talks the long view (like so many CEOs) but actually acts that way. He is the consummate delegator: setting objectives and letting people have at them, trusting his people to act in the best interests of the organization, not second guessing things but working with the leaders to get the best results.

    The empirical information to back this up is not just the stock performance, but the organizational turnover, the employee satisfaction, and the respect of his peers.

    I have had the pleasure of having dinner with him, hearing him speak to a small group after dinner, and a post-dinner chat with him, Bill Gates, and Jack Welch. The respect he garners is deep, and well-deserved. And his corporate results show this definitively.

  • Rob

    The red line is Buffet’s performance. The other is S&P500. I can’t figure out how to change them in Swivel, but once I do I’ll update the graphs.

  • Rob

    Ok, I think it works now.

  • IMHO it is wrong to look for the specifics… the exact practices at BH.
    The real answer is in this sentence from your critique “many of the managers talk about how they love working for him and being a part of Berkshire”.
    Rob if you “love” what you do, and where you do it you’ll put all your heart into it. Then, if you have the right stuff (so to speak), you become an above-average achiever. Buffett finds people (and companies) with the what he believes is the right stuff. He has a specific recipe and he follows it. Then Buffett gives these right people what they need to love being with him.
    I know it’s cliché but (almost) “all you need is love” to get above average performance.

  • Buffett is more of an “uber-investor” than a true CEO in the “executive” sense of closely managing his companies. This allows him to take the long view, simply because he can’t be forced out or otherwise threatened in his position.

    It also allows his CEOs to be less distracted by having to market their ideas and strategies to Wall Street.

    In a sense, this is a powerful argument for private equity, as one would imagine that a “Buffett-style” of interacting with investors would be more likely to develop with private investors than with the public markets…

  • ski


    this is very good insight… i have long preached the ills of the quarterly earnings statements. i only work with small privately held firms, and the CEO that as jim collins says, is “the right” person. the right team, with freedom from stupid short-term, ill-conceived goals, must (and wil) outperform the field.


  • Bob

    Simply stated, Buffet takes a long term view of investing as opposed to buy and sell fund managers. That he has been able to consistently outperform the S$P 500 by a signigicant margin is no small feat. Read some of his letters in his annual reports to get a better idea of how he looks at the company.

  • In a recent video, the most extended I’ve seen, Buffet reveals some telling facts about his investing style. The closest term I can see for it would be Von Mises’ “praxeology”. You can see if I’m right…my post is here:

  • Ryan

    One thing this does not consider is that Buffett was a highly accomplished investor when he was running his private investment partnership in the 60’s. He managed returns far in excess of the market during that time with only minority positions that did not give him any influence over most of the firms he invested in.

  • Greg

    You should compare the chart you put up here— which is basically Berkshire versus the S&P– to the chart when Buffett was running his investment company in the 60s. In Berkshire’s case, he is essentially a CEO, in the latter case he was a minor investor who really had no major influcence on the companies he invested in. THEN you’ll have a better answer to your question.

  • Andres Arias

    I am looking for something bad about Buffett. I can’t find anything. He seems to be a genuinly good guy. I am researching to see if he has used any leadership styles that have been bad for business.