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Thursday 4 December 2008

Will the wisdom of Warren Buffett translate into German?

Matthew Lynn wonders whether the world’s greatest investor will be able to pick winners in continental Europe the way he has for more than four decades in the US

If Warren Buffett had not become famous as the world’s richest man — a career choice that trumps most alternatives — he could still have carved out a niche for himself as a writer of homely lessons in economics and business. The Sage of Omaha, as Buffett is known for his uncanny knack of calling the markets right, has always been able to explain his decisions in simple language. Buffettisms such as ‘Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1’ and ‘Only when the tide goes out do you discover who’s been swimming naked’ have become common currency in the financial world. Indeed, investors have learned to appreciate them almost as much as the decades of virtually unbroken outperformance by Buffett’s holding company, Berkshire Hathaway.

Now it looks as if Europe is about to get the Buffett treatment. For a week in May, the 77-year-old homespun multibillionaire, who hardly ever travels out of the United States, took a tour of Italy, Spain, Switzerland and Germany. He had meetings with a series of executives and dignitaries, to familiarise himself with countries where he thinks he may make his next big deals. While the rest of the world is focusing on the vast potential of China and other emerging markets, Buffett is looking at the possibilities of Germany and Italy, economies the rest of us assume to be permanently bogged down in euro-stagnation.

‘In Europe,’ he told a press conference in Frankfurt, ‘there’s far more companies that would make sense for us to buy and for them to sell to us. In emerging markets there are going to be very, very few. You want to fish in a pond where the fish are, and Europe is a much better pond.’

There are two interesting questions raised by Buffett’s sudden enthusiasm for the Continent. The first is whether his brand of folksy wisdom can travel across the Atlantic. The second is this: if Buffett thinks Europe is the place to put his money right now, is he on to something the rest of us have failed to spot? After all, he didn’t get to be the world’s richest man by calling those kinds of decisions wrong.

More articles from: Matthew Lynn | this section

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