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Think long term: Why Buffett beats the Budget

There’s something at once calming but also disturbing about a week that includes both the Federal Budget (and the Opposition’s Budget response) and the annual meeting of Warren Buffett’s company, Berkshire Hathaway.

Buffett, as if you didn’t know, is the world’s most successful investor. Berkshire is the textile-mill-cum-investment-conglomerate that Buffett has used as his canvas for over half a century.

The Budget circus, is, well, politicians being politicians.

Don’t get me wrong. I love the yearly Budget. More than I should. I enjoy the display of democracy, the insight into policies and priorities and, well, the numbers.

In a perfect world, Buffett, Turnbull and Shorten would be on the same page: how do we create and enact policies and pursue priorities that create the most value over the longest time.

Okay, stop laughing.

Funnily, enough, our politicians do resemble many CEOs, though. Like politicians, CEOs know they’re there for a good time, not a long time. And so the temptations for both are hard to resist: do I want to do the right thing, or do I keep my job.

Don’t get me wrong: not all of our elected and commercial leaders are like that. There are some noble examples of leaders falling on their swords for the common good. The most notable, relatively recent, example is former Queensland Premier Rob Borbidge, who went along with John Howard’s gun law reforms, knowing that it would all-but doom his government. And I’m sure there are others.

But most shareholders, like many voters, are easily swayed by the short-term, the exciting and the shiny. And we shouldn’t be surprised that the path of least resistance is to give people what they say they want.

Exhibit A is Donald Trump. Like him or loathe him, he broke almost every political convention in the book, but still got the bickies, because he resonated with a large swathe of the American electorate.

Bad CEOs are probably worse. We don’t see them that way, in part because most people expect their behaviour to be less principled, in a relative sense, than our politicians. CEOs are judged over quarters or, if they’re lucky, years. Not only that, but they get bonuses for that performance. ‘What gets measured gets done’, after all.

But back to Buffett.

The 87-year old did on Sunday morning, Australian time, what he’s done every year for decades: took questions from all-comers who seek his views on life, business and investing.

And the other 364 days, he does what he does every other year: invest with the long term in mind. Warren Buffett is, quite literally, making decisions now that he expects won’t pay off until after he’s dead. Or at least where most of the returns will come, compounded, well into the future.

Buffett does have one key advantage: he owns a large chunk of the company, which essentially guarantees his job. But he has something else that’s far more important: the support of almost every investor in the company. So much so that when one investor proposed Berkshire be required to pay a dividend 95% of the company’s shares were voted against the proposal: “No thanks, Warren, keep the cash, we trust you”.

But it’s not just an option open to businesspeople. In politics, it’s called ‘vision’. Or, to quote Paul Keating, ‘the vision thing’. Sure, that can conjure up images of advertising types and beanbags, but stick with me. Warren Buffett has built a shareholder culture by setting out a long-term plan, gaining buy-in, and acting accordingly. In politics, the equivalent is describing the sort of country we could be, explaining how we’ll get there, and being consistent — earning the electorate’s trust.

Unfortunately, I’m not holding my breath. The lure of the short-term, the next poll and the disquiet of the party room are just all too hard for most to resist.

In the meantime, I’m a happy Berkshire shareholder. And I’m actively looking for (and own) companies that exhibit the same shareholder-friendly, long-term approach here in Australia. I look for founder-CEOs, management and boards with high levels of share ownership in their companies. And companies that are planning — and acting — with the long term in mind.

It’s not the only way to beat the market, and it’s not guaranteed. But when it comes to putting the odds in your favour, wouldn’t you rather be in the same boat as a long-term manager-owner than wondering when — to mix the metaphor — they’re going to jump out of the plane with a golden parachute, and hoping that the new pilot is up to the job?

I continue to hope our politicians will grasp the nettle. In the meantime, what are the odds that Warren Buffett really is immortal?

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Scott Phillips owns shares in Berkshire Hathaway. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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