Warren Buffett stepped down as chairman of Berkshire Hathaway (BRK.B) last week, and readers poured into the Journal’s story, most of them, Spencer Jakab figures, hoping a little of the magic might be contagious. His Heard on the Street column on Friday breaks the news gently: you can’t be Buffett. Here’s the twist. Buffett couldn’t be Buffett again, either.
Start with where he hunted. In his heyday, Buffett “fed on the tiniest plankton of the stock market,” as the Journal’s Jason Zweig has put it, scooping up pieces of small, overlooked companies. That well has run dry. Then there’s arithmetic, because success limits itself. A fund that had cracked the value and quality factors at the turn of the 20th century and compounded at Buffett’s roughly 20% a year would have turned $10,000 into $100 trillion, about triple the U.S. economy, and there’d be no one left to outrun. Berkshire itself shows it: past $1 trillion in value, its returns have turned ordinary, and it’s built the largest cash pile on record.
The rest of us hit other walls. The best-known academic attempt to reverse-engineer him is a paper titled Buffett’s Alpha, yet nobody has built a second Berkshire. Clever edges vanish as soon as other smart people spot them, and the factors Buffett rode have been in a slump: over the 10 years through August, $10,000 grew to $35,416 in the S&P 500 but only $24,647 in its value index, with the quality index at $33,617. Jakab’s honest estimate for a superior strategy you can actually stick with is an extra percentage point or two over the long run. Or nothing.
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The kicker is an estate-planning document. Buffett’s will, Jakab notes, instructs his widow to keep 90% of what she inherits in an S&P 500 index fund and the other 10% in short-term Treasurys. By the column’s count, the typical overactive investor lags that plain mix by about 1.5 percentage points a year, and the gap compounds: over 25 years, a 1.5-point annual drag leaves an account roughly 30% smaller. In investment terms (IN04), that’s the part of the Buffett story an ordinary investor actually controls: costs, turnover and the itch to do something.
There’s a behavioral lesson tucked inside the estate plan, too. Buffett wrote the instruction down in advance and kept it simple enough for an heir to follow without him. The 10% sits in short-term Treasurys, the same shelf where we keep our own safe money, and we didn’t buy anything new this week. Buffett didn’t wait for the rain to decide where the umbrella goes. If your will or beneficiary forms would hand someone a pile of money with no instructions attached, that’s a fifteen-minute conversation worth having now.