| HN Mirror

Buffett's returns today, while still very good, are a pale shadow of the returns he put up in his first decade, or even his first 30 years. Somehow all these "sweet deals" haven't moved the needle for Berkshire.

The real reason current returns are lower is that the constraints on Buffett have grown over time and now are the heaviest they've ever been. Investing a $400B portfolio offers him far fewer opportunities than a $50M or even $10B portfolio did.

And announcements of his purchases are very damaging to his returns. Typically only has a month or two before he's required to file with the SEC disclosing significant new purchases. So accumulating billions of dollars of stock in most companies in those months without driving up the price is either impossible or really difficult. Once he files his SEC report, the prices almost always increase substantially from 'free riders' trying to piggyback on his trades.

The stock price popping up quickly not good for Buffett, in fact it's terrible. It forces him to stop buying what he regarded as a bargain. He never flips his positions, he's going to hold them for many years, usually many decades. The free rider problem means he has to invest less, and make less on each investment, hurting his returns.

And the "sweet deal" allegation is pretty ludicrous. Berkshire is a very special financial source, a CEO can call Buffett directly and get a hard price almost immediately. The price he gives is never very good, but for businesses that need money badly they know he will always close the transaction quickly without trying to renegotiate or bailing out.

Goldman Sachs during the 2008 crisis was a good example. Goldman is owned/run by hard eyed partners, but during the crisis their backs were against the wall. They had to add more capital, and were being forced to sell shares at really horrible prices to raise it. They got $5B from Warren in an emergency phone call, and in preferred shares were less dilutive than selling common shares.

No one else on earth was willing to step up during that immense crisis and give Goldman a better deal, more likely any deal at all (Lehman had just filed bankruptcy). If someone else gave them a slightly better offer, the sharks at Goldman would have taken it.

And Buffett is always laughed at when making these deals because wall street execs claim he overpaid. Its not till years later when the results come in that revisionists says they were obvious sweetheart deals. Yet somehow the revisionists never picked up the phone to get in on them.