Winton, Warren Buffett and Getting Dates

Chidem Kurdas

Berkshire Hathaway stock is a surprising buy for a futures trading shop, the London-based Winton, which spent more than $106 million to acquire nearly 900,000 shares of Warren Buffett’s famed holding company.

Winton is a specialist in quantitative-model driven futures trading—founder David Winton Harding has a physics degree from Cambridge University. Such quants are, generally speaking, some of the cleverest people you will ever meet. For all that cleverness, they often lose large sums.

The main futures strategy is to use computer models to identify trends – sometimes fleeting, short-term trends – and go along with the trends. To put it crudely, they buy whatever is going up and sell whatever is coming down. If the trend suddenly reverses, they lose money.

Obviously, these traders are a very different type of market player from Mr. Buffett, the champion for buying assets in a slump and holding them indefinitely.

Why did Mr. Harding go for Berkshire Hathaway? One could see the holding company as one very long trend in itself, with a compounded book value that has increased on average by nearly 20% a year from 1965 through 2013, according to the most recent letter to shareholders.

Berkshire Hathaway makes the kind of huge, long-term investments that are beyond the resources of Winton, or for that almost any hedge fund. Even private equity funds do not hold for such long periods, they plan to sell when the opportunity arises.

Here is how Mr. Buffett put the matter in his February 28 letter: “Woody Allen stated the general idea when he said: “The advantage of being bi-sexual is that it doubles your chances for a date on Saturday night.” Similarly, our appetite for either operating businesses or passive investments doubles our chances of finding sensible uses for our endless gusher of cash.”

Berkshire Hathaway has the flexibility of getting involved in the management of a business or not, as conditions warrant. Shareholders benefit from that immense ability to get dates as desired.

Winton’s commitment to Berkshire Hathaway, probably part of a long-only portfolio, accounts for a small part of its total assets—which are below $26 billion, after clients redeemed several billion in 2013 because of lackluster performance.

It does raise a question, a common one these days about hedge funds. Why would you want to pay fees to a manager to buy Berkshire Hathaway shares for you? You could do that directly yourself.

Managers do not like the question. One said: “Yes, if they want to manage their money themselves, they should not waste our time.”

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