Ironmen
Sometimes it's more about how long you stay in the game versus your peak performance
Which of these two baseball players will people remember for longer?
Cal Ripken Jr. or Pedro Martinez?
Martinez’ run from 1997 to 2002 was one of the best stretches of pitching we have ever seen. He won three Cy Young awards (2nd place twice), posted earn run averages less than two in ’97 and ’00, and anyone that was a Boston Red Sox fan will tell you that any time he took the mound in ’99 was appointment television. (I occasionally rewatch his 17-strikeout performance against the Yankees on YouTube).
Cal Ripken had his fair share of good years, two-time MVP, two gold gloves, and 19 All-Star appearances. He was a great shortstop/ 3rd baseman that had a few standout years and several middle-of-the-road performances thrown in there. Ultimately, he ended his 21-year career with the 820th-best batting average of all time.
And yet, Ripken’s name will likely go down as one of the few names that will remain a part of baseball lore (for as long as baseball remains popular, that’s a whole other story). Not because of some period where he was the undisputed best player in the league or some unforgettable performances. It all comes down to one number:
2,632
That’s how many consecutive games baseball’s ironman started. For context, the closest we have come in the past 15 years to Ripken’s record ended last year at 553 games, less than a quarter of Ripken’s streak.
Many baseball writers have praised Ripken for his “grit” and similar adjectives to express his longevity, but they often overlook two important things.
Luck: You can gut it out through bumps and bruises, but all it could have taken was one wild pitch to break a bone in a hand to put you on the injured reserve list.
Staying good enough to stay in the show: From 1987 to 1989 -- right in the middle of Ripken’s run – he hit a league average .260 and looked nowhere close to the ’82 MVP season. Ultimately, though, he was good enough through that stretch that no manager would bench him. It took nine more seasons before he sat out a game.
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A love letter to endurance
After that long-winded intro, let’s talk about Warren Buffett. The Berkshire Hathaway annual letter is making the rounds, and people are falling all over themselves to find some deep investing lessons in this year’s letter.
Here’s one that stood out to me as peculiar:
On the surface, this sounds great! Large numbers like that must mean the investment was a success, right?
Well, I guess it depends on your definition of success. Yes, it certainly made money, but how did that perform relative to the market?
I’m going to make some rough assumptions here, but I think they are roughly correct.
In August of 1994, a 400 million share position in Coca-Cola would be valued at around $2.05 billion. So we’re already looking at roughly a 57% gain (no dividends).
Impressive.
Since then, though, this investment could be described as decidedly average. A $2.05 billion position in the S&P 500 (I’m using the SPDR S&P 500 ETF Trust as a proxy) starting in August 1994 would be worth about $29.2 billion and would be throwing off about $466 million in dividends.
Yeah, it is certainly a better outcome than the alternative he presented in the letter (buying long-dated treasury bonds). There are also other factors that would have altered the outcome (taxable gains on the KO position in 1994, fees for holding in an ETF, etc.). The larger point is that this was nowhere near one of Buffett’s best investments. And yet, the financial blogosphere will drool over these numbers and proclaim that Buffett is the best ever to do it.
I can’t say I‘m 100% on board with that conclusion.
Buffett is Cal Ripken.
The enduring legacy of Warren Buffett and Berkshire Hathaway long after he steps down will be the fact that he did it consistently for so long. There are some years where Berkshire put up incredible results, and some investment decisions were sheer strokes of genius.
But a fair share of investments in the portfolio would be considered mediocre or average investments if owned and held by any other investor.
Buffett even admitted as much in this year’s letter:
Our satisfactory results have been the product of about a dozen truly good decisions – that would be about one every five years – and a sometimes-forgotten advantage that favors long-term investors such as Berkshire.
I'm not sure why he decided to highlight Coca-Cola as one of those great investments. Personally, I think Berkshire made far better investments worth highlighting than Coca-Cola. But that’s picking nits.
To make a truly good decision every five years or so, it means making lots of mediocre moves in between to stay in the show.
The irreplicable Ironmen
I think it’s fair to say that no one will ever break Cal Ripken’s consecutive games played record.
We have had our Pedro Martinez’s of the investing world. One’s that produced investment returns over several years that leave us amateurs gobsmacked. Peter Lynch and his 29% annualized returns at the Magellan Fund is the first to come to mind.
And yet, I think that over a long enough time, we will have more Peter Lynch’s. I don’t know if we’ll ever have another Warren Buffett.