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Tom,

As usual, you ask a really interesting question:

Which leads me to a question I've never seen asked of Mr. Buffett. Given what he has said repeatedly about the burden of capital and the opportunities in obscure small companies, if he were a young investor with less than $5 million today, would he invest anything meaningful (or anything at all) in a company of the size and scope of Berkshire Hathaway? I don't think he would. It would be interesting to hear.

I believe that Warren mentions the potential for 50% rates of return for the young, dedicated and rational investor in order to inspire younger investors that the potential still exists for market-beating rates of return. Both Warren and Charlie talk about how short-term institutional traders leave lots of opportunities for the smart, dedicated, rational and patient investor. There are more smart people focused on stocks today than ever before, but they do not always act rationally—thus giving the opportunity for outsized returns.

Based on my read of the situation, I have every reason to believe that both Warren and Charlie believe they could duplicate earlier results if they had to start over again. Remember, these are confident and independent thinkers. Also remember that it is foolish to believe that Warren would end up with exactly $43.2 billion if he went back to 1950 and re-ran the tape. The present outcome is one point on a distribution of expected returns. For example, I set up a simulation assuming that you have the best of the best manage a portfolio with an average return of 15% with a standard deviation of 20% and let them take over in 1966 with $25 million. The mean or expected outcome to date is $10.1 billion, and the median is $4.5 billion. You would have a 3.74% chance of ending with $43 billion. The upshot: If Buffett started over in 1966 he would have a tough time catching up with Buffett. The record documents the fact that Buffett has been very, very good, and that he has caught some breaks along the way. Good and lucky beats good every time. The catch is, of course, that Buffett earned a 29.5% annual return for 13 years to get to $25 million in 1966. (None of us are going to be Warren Buffett.)

Please do not take any of this to be critical of either Warren Buffett or Charlie Munger. I'm not.

Finally, like you, I have never heard anyone ask Buffett if a new and eager Buffett would buy Berkshire Hathaway stock. My speculation is that he would not.

We know that Buffett asked his dad to take him out of the will, leaving all of that estate to his two sisters. His spoken reason was that he didn't need the money. I believe the unspoken reason was that he didn't want the money. Warren also wanted his dad to know that he was his own man. Neither Warren nor Charlie are contented followers. Both learn from others, but have never worked in harness. The couldn't if they tried.

Finally, I'd just like to thank you and your brother for all the good things you have created here at TMF. You could have taken lots of money (hundreds of millions) and ran with a 2000 IPO. That you did not speaks very well of you both.

Best wishes,
Mark
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