Tuesday, May 8, 2007

Ozymandias

I met a traveller from an antique land
Who said:—Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shatter'd visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamp'd on these lifeless things,
The hand that mock'd them and the heart that fed.
And on the pedestal these words appear:
"My name is Ozymandias, king of kings:
Look on my works, ye mighty, and despair!"
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.


— Percy Bysshe Shelley, "Ozymandias"

Jeff Matthews is freaking me out. He travelled to Omaha, Nebraska this past weekend to attend the annual meeting for Berkshire Hathaway, and he has posted the first in a series on his journey. So far, the full story has yet to be told, but Mr. Matthews has set the stage with an extensive description of his travels.

I do not know how Mr. Matthews feels about Warren Buffett, but I will say that he makes a pretty good reporter, if this post is any indication. It is not his writing per se that bothers me. No, what gives me the willies is his description of his journey to a small, nondescript Midwestern town in terms more apt for a pilgrimage to Lourdes, or the hajj to Mecca.

The crowds are, as were those I saw waiting for our flight, mostly white (more on this later), mostly middle-to-old aged, and mostly couples, dressed casual-nice, with men in short-sleeved shirts and women in pant suits. In addition to the couples there are those young-to-middle-aged men who look like they’re going to one of the Police reunion concerts, so eager are they to hear the teachings of the Master first-hand.

A Hilton Hotel is attached to the Qwest complex, and from its doors a more prosperous, jacket-and-tie group of shareholders is walking into the arena. The Hilton, I am told, is where the Buffett elite stay, and it is impossible to book no matter how far in advance the average shareholder tries.

In fact, there is a pecking order to the entire affair that will persist all weekend, at each event: an individual’s status is determined by the length of time the person has been attending a Berkshire meeting.

Mr. Matthews has me hooked: I definitely want to see how his trip turned out, and how he feels about the "Sage of Omaha." But his piece smacks a little too much of Pilgrim's Progress, or the Nuremberg Rallies, not to give me the shivers.

Contrast this with an opinion piece (subscription required) by John Kay in the Financial Times this morning. In it, he comments on a new book on the halo effect by Phil Rosenzweig.

There is a large element in performance that is random, or at least outside the control of the individuals and organisations concerned. The environment changes more than the personalities and corporations that populate it. Winston Churchill was a disastrous chancellor of the exchequer in Britain’s depressed 1920s, but the man of the hour when the country faced Adolf Hitler alone in 1940.

But our search for excessively simple explanations, our desire to find great men and excellent companies, gets in the way of the complex truth. The power of the halo effect means that when things are going well praise spills over to every aspect of performance, but also that when the wheel of fortune spins, the reappraisal is equally extensive.

I tend to think such reappraisals, when they do come, are exaggerated in the short term by the sense of betrayal many people feel when their heros let them down, the outrage from having had the wool pulled over their eyes. The demigod whose feet you kissed a year ago becomes the charlatan you string up from a tree the next. (A recent rereading of the story of the rise and fall of Long Term Capital Management, When Genius Failed, has been instructive for me, especially in light of the current frenzy for alternative investment strategies.)

The people who ride these waves of adulation tend to become convinced of their own greatness and goodness (because so many people tell them so), and they are usually the most surprised when the worm turns. Just think of Richard Grasso's shock, outrage, and—yes—hurt when the Great Men of Wall Street he counted as admirers and friends turned praise into condemnation.

The picture—at least for business figures—is complicated in the United States because it appears that F. Scott Fitzgerald was wrong: there are second (and third, and sometimes fourth) acts in American lives. Rudy Giuliani is living proof.

Corporations may not have the same resiliency as individuals. Mr. Kay writes:

For corporations, the lesson is that there is no recipe for enduring excellence: the distinctive characteristics that yield competitive advantage, because they are hard to replicate or emulate, will inevitably be more appropriate for some conditions than for others. If you top the list of most admired companies, there is only one direction in which your ranking can go, and it will.

In any event, there is one thing of which I am certain. Investment firms and investment gurus, of whatever stripe, are not immune from these laws. Trees do not grow to the skies. Flipped coins do not turn up heads indefinitely. Sooner or later, a reckoning is coming, for all of us. And the ones at the top of the mountain will have the furthest to fall.

Who is next? Steve Schwarzman? James Simons? Warren Buffett?

Hero? Or goat?

Who's your daddy now?

© 2007 The Epicurean Dealmaker. All rights reserved.