I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire’s chief investment officer when the need for someone to do that arises. As part of the selection process, we may in fact take on several candidates…
Being able to list Berkshire on a resume would materially enhance the marketability of an investment manager. We
will need, therefore, to be sure we can retain our choice, even though he or she could leave and make much more money elsewhere.
There are surely people who fit what we need, but they may be hard to identify. In 1979, Jack Byrne and I felt we had found such a person in Lou Simpson. We then made an arrangement with him whereby he would be paid well for sustained overperformance. Under this deal, he has earned large amounts. Lou, however, could have left us long ago to manage far greater sums on more advantageous terms. If money alone had been the object, that’s exactly what he would have done. But Lou never considered such a move. We need to find a younger person or two made of the same stuff.
And here’s Cox:
Though Buffett has not revealed what Berkshire would be willing to pay to fill the post, he hints it will not be commensurate with the industry: “he or she could leave and make much more money elsewhere.” It’s easy for Buffett to say this. As the owner of so much Berkshire stock, for decades he has essentially given his prowess at allocating assets to the rest of the company’s shareholders more or less for free.
Cox then compares Buffett’s investing acumen with that of Edward Lampert, whose 1-and-20 hedge fund made him the first hedge fund manager to make $1 billion in one year. “Surely,” says Cox, “this would fly in the face of Berkshire’s anti-croupier culture.”
Cox is half-right: Buffett will not get, nor does he want, a would-be billionaire, let alone someone who aspires to earn $1 billion in one year. But that does not mean he won’t find what he’s looking for — I’m thinking here of someone like David Swensen, of Yale, who seems to be perfectly happy making $1.3 million per year.
It might seem weird to Rob Cox, but there are in fact people who understand the concept of diminishing marginal utility. Once you have $20 million or so in the bank, especially if you’re a halfways-decent investor, you’re very unlikely to spend all your money — certainly if you live the kind of life that Warren Buffett would admire. So from that point on you really don’t need to make any more: the money stops being something to spend, and starts being a way to keep score. There are many people out there who value a great job at Berkshire Hathaway and their own personal happiness above that desire to beat the next guy in the personal-wealth stakes. And if anybody can find them, Buffett can.