Can you picture a money manager that claims making a return of more than 1100% over a 10 year period, While beating the stock market almost tenfold. The same money manager also reports gains of 10% to 22% during the four years of a down market. Would this seem too good to be true to you?
Also, one of Warren Buffett’s biographers wrote that when he asked investors for contributions, he:
“… Warned that he would disclose nothing about where their money was invested. He would give them a yearly summary of results, nothing more… Also, [he] would be ‘open for business’ only one day a year. On December 31, [the investors] could add or withdraw capital.”
The lack of liquidity and transparency could seriously raise some red flags. Anybody truly skeptical could potentially think that Warren Buffett was even running a Ponzi scheme after a fashion: what would stop a money manager from using money received from new investors as a way to augment the returns of any investor withdrawing money on December 31?
That’s what I first thought when I read Warren Buffett’s investment partnership description between the years 1957 to 1967 in Roger Lowenstein’s book, Buffett: The Making of an American Capitalist.
I’m not trying to say that Warren Buffett engaged in any funny business or sleight-of-hand. But since reading Lowenstein’s biography, I’ve always wondered if the example set by Warren Buffett disproves efficient market theorem, or demonstrates otherwise that someone with the right temperament and smarts can beat the stock market over the long haul.
There isn’t any public data or records to confirm the incredible returns that he’s claimed which launched his reputation and track record, and brought about building the financial conglomerate that he created.
Does Warren Buffett’s early career cast doubt upon the later success of the Oracle of Omaha?