WARREN BUFFETT IS AN “IDIOT”?

I was disappointed to read that Dennis Gartman called Warren Buffett an “idiot” in an interview with the Oregon Business News.  For someone who doesn’t disclose audited results or run a public company, Mr Gartman sure is wielding a mighty big stick.  Most disappointing though, is that a master of diversification and non-correlated assets (as Mr. Gartman clearly is) could so terribly misinterpret Buffett’s strategy.   In the interview, Gartman said:

“Warren Buffett is an idiot.  Shame on Warren Buffett. That’ll be a good quote for your article.”

The quote was in reference to buy and hold investing.  Mr. Gartman is hilariously wrong, not only for his vast misinterpretation of Buffett’s strategy, but also in calling Buffett (an undisputed genius) an idiot.  I recently wrote:

Buffett likes for you to think that he just reads balance sheets all day and let’s everyone else manage his $150B empire, but that’s just not accurate.   Buffett scrutinizes every aspect of a deal in the same way that a private equity fund or hedge fund would.  He sells this folksy next door persona, but Buffett is far more complex than he leads on.  Although most of Buffett’s long-term returns came from a few names (Coke, Geicco) he is actually more active than many think.  His derivatives and currency trades over the years are far from “value investing” and his entire insurance business is more like an option writing strategy than anything else.  The myth that Buffett is a pure value investor is just that – a myth.

The brilliance of the Buffett portfolio is incredible. While he uses the insurance business as a pseudo option writing strategy (bringing in massive boatloads of cash) he is essentially running a multi-strategy hedge fund that is part private equity firm part long/short investment fund.   To classify Berkshire Hathaway as nothing more than a buy and hold strategy is simply 100% wrong.  Buffett not only makes money by buying stocks, but also purchases commodities, derivatives, writes options, sells bonds, invests in bonds, etc.  He has a very diverse set of cash flows.  More hilarious is Gartman’s own strategy.  He says:

“Do more of the things that have worked. And try, try, to do less of the things that have not. If you do that in life, it’ll work.”

Mr. Gartman essentially has a very diverse trend following  strategy.  He buys what’s working across a huge number of assets.  You could easily argue that Buffett is the king of this strategy.  He has held what’s “worked” for years.   His holdings in Coke and Geicco alone are proof that Mr. Gartman could likely benefit from a bit more of his own cooking.

Gartman’s strategy is brilliant in it’s own right, but let’s be real here.  If Mr. Gartman’s own strategy were creating so much alpha we would see him running a huge hedge fund and gracing the Forbes 400 list as opposed to writing a newsletter and making appearances on Fast Money.  (I have read recently that Gartman is starting his own hedge fund – it will be fun to see his results over the coming years).  Mr.  Gartman is famous for buying what’s going up.  I’d really like to believe that this strategy is the road to riches, but it’s simply not.  Mr. Gartman sounds very smart because he is well versed in many markets, but his strategy of buying momentum simply does not produce outsized risk adjusted returns over the long-term (I know because I have run the numbers on hundreds of funds utilizing the same strategies – some of which are run by MUCH smarter men than Gartman).  Personally, I would love to get my hands on his audited results.  My guess is a few Sharpe and Sortino ratio calculations would prove why he writes newsletters as opposed to running sizable money.

As far as I am concerned, releasing public results is like keeping score.  Those blinking numbers on the exchanges are a constant reminder of how the market is voting with their dollars.  While Mr. Gartman keeps no such public score Mr. Buffett is the undisputed heavyweight champion of the world with a staggering score of over $85,000.   After all, he didn’t become the world’s wealthiest person by sheer luck.  If only we could all be so idiotic….