“I don’t want to spend too much time on Buffett. George Soros has 2 million times more statistical evidence that his results are not chance than Buffett does. Soros is vastly more robust. I am not saying Buffett doesn’t have skill—I’m just saying we don’t have enough evidence to say Buffett isn’t doing it by chance.” – Naseem Taleb
I picked up Warren Buffett’s essays called Lessons for Corporate America . After I mentioned the book to my father, he told me about the quote above from renowned economist Taleb. I wasn’t able to find the data to corroborate the statement but thought it would be interesting to read Soros, so I bought his Lectures to the Central European University to compare and contrast the two great investors and understand what might be relevant to venture capital.
How do they compare?
Soros is a speculator and Buffet is an investor.
Soros champions a concept he created called reflexivity. Reflexivity posits market acts to discover true prices but the actions of traders can render fallacious price discovery. This is precisely the time when investors can generate great returns, if timed correctly.
Buffett is a long term investor with a near infinite investment horizon. A student of Ben Graham’s investment philosophy, Buffett invests in companies possessing sustainable competitive differentiation, great management teams and revenue models he understands. When he acquires a company he keeps the management team intact, requires they own a significant portion of the company and intends to own the company forever.
Balancing the two points of view is important in entrepreneurship and venture since the investment is longer than Soros and shorter than Buffett.
- The right investors ensure that founders and management have strong incentives in running the business, i.e. significant ownership positions.
- To build long term value, sustainable competitive advantage is essential.
- Market timing is key. Building the right product is great, but the market needs to be ready for it.