In 1969, Warren Buffett faced a dilemma. Some Buffett Partership limited partners were voicing their disappointment that Mr. Buffett had been sitting mostly in cash for a long time and, as a result, they were not making the wonderful 20% plus returns of the past decade. They wanted him to invest. But Mr. Buffett knew that in every bull market Mr. Market gradually becomes used to paying more and more for a business -- and eventually the prices get so high that there just is no rational choice but to stay in cash and wait for the inevitable crash. 1969 was 4 years past the peak of the bull market that started in 1942, but the market was still overpriced, so Buffett wasn't investing -- and the partners were getting antsy. Now what to do? Should he pay more for a good business or fold the partnership? Would the market do what it had always done and crash, or somehow continue to defy business gravity?
Mr. Buffett has always maintained that the ONLY way to invest successfully is to buy wonderful businesses at attractive prices -- and if you can't, don't invest. Therefore, in 1969, he closed the partnership rather than violate the basic principle of investing that had given him so much success. At that point, many of the partners wanted to know who to invest with. Mr. Buffett told them that they could buy Berkshire Hathaway stock but not to expect him to do anything except wait for better opportunities. But if they wanted to be in the market, he recommended only one fund manager: Bill Ruane, manager of the Sequoia Fund.
Mr. Ruane and Mr. Buffett shared the common investing philosophy as taught by Ben Graham. The same one, more or less, that I am trying to teach you guys here. Don't lose money. Buy wonderful businesses at attractive prices. But as a fund manager, Mr. Ruane faced the tougher challenge. He had to invest partnership money all the time while Mr. Buffett, now the head of Berkshire Hathaway, could sit on cash for years if he wanted to. By judiciously applying what Ben Graham taught him, Mr. Ruane beat the very long odds against fund managers for over 30 years, making Sequoia one of the very few funds ever to beat the S&P 500 index for over a twenty year period. Even today, almost 40 years later, Sequoia Fund continues its long history of outperforming the S&P.
I mention this because on Tuesday Mr. Ruane passed away at the age of 79 and we lost one of the greatest investors ever to analyze a business. My condolences to his family and loved ones. He was a great man. The New York Times article details his great gifts to charities but I think his most important legacy lies in his investment philosophy and in his consummate skill as an investor. Anyone with money can give it away. But how many can make money grow like Bill Ruane did? He made thousands of people wealthy. Few people in this world can say as much.
Now go play like Bill. He'd probably like that.