The Warren Buffett curse is alive after downfall of Sam Bankman-Fried

Being compared to Warren Buffett, one of the most successful and legendary investors in the world, should be taken as a compliment.

But it can feel more like a curse, as a number of market icons once dubbed “the next Warren Buffett” have ended up flaming out in spectacular fashion, the most recent example being Sam Bankman-Fried of FTX.

Fortune put Bankman-Fried on the front page of its August issue, asking readers if he was in fact the next Warren Buffett? The question was asked for good reason, as Bankman-Fried had built a multi-billion dollar fortune in a short period of time through crypto.

But just three months later, Bankman-Fried has imploded in spectacular fashion as his FTX crypto exchange filed for bankruptcy due to a severe liquidity crunch that will cost investors, and potentially FTX customers, upwards of $10 billion or more.

Bankman-Fried isn’t the first market icon to fall after being dubbed the next Oracle of Omaha. Here are three other investors who have struggled after drawing comparisons to the legendary chief of Berkshire Hathaway.

Eddie Lampert

In Businessweek’s November 2004 issue, the magazine put hedge fund manager Eddie Lampert on the cover of its magazine and asked, “The Next Warren Buffett?”

The profile came after Lampert led a successful turnaround of Kmart, which after emerging from bankruptcy became a profitable business for Lampert and investors. “Will he build it into a new Berkshire Hathaway?” the magazine asked.

The answer: no.

As chairman of Sears Holdings, Lampert organized a takeover of Kmart in a bid to turnaround two struggling retailers. But then an e-commerce behemoth known as Amazon wrecked those plans. The end result was a long and winding road to bankruptcy that saw a complete value destruction of Sears, leading to the total closure of the once-iconic retailer.

Bill Ackman

In a special 2015 edition of Forbes magazine, hedge fund manager Bill Ackman was put on the cover, with the tagline “Baby Buffett.”

“Wall Street’s loudmouth banked over $1 billion last year. Now he’s quietly creating the next Berkshire Hathaway,” the magazine cover said. The profile came after Ackman made big money on pharmaceutical companies Valeant and Allergan, and as the investor was in the throes of a short-selling campaign against Herbalife.

Just three months after the magazine profile, a price-gouging drug scandal hit Valeant hard, and its stock swiftly plummeted more than 90%. Ackman’s thesis on the health care company, which he called a platform company similar to Berkshire Hathaway, was invalidated. Later, Ackman’s short bet against Herbalife would also turnout to be a near $1 billion money loser for him.

Ackman ultimately bounced back, and despite his tough losses in 2015, he’s highly regarded for his prescient bets on macro developments and is considered among the hedge fund elite.

Chamath Palihapitiya

Chamath Palihapitiya’s success in the stock market is hard to ignore over the past two years. He revolutionized the use of SPACs to take public innovative companies that would otherwise face challenges taking the traditional IPO route.

Several of Palihapitiya’s SPAC companies soared in value amid the SPAC boom of 2020 and the early months of 2021. And investors paid attention, including Josh Brown of Ritholtz Wealth Management.

Palihapitiya was often compared to Buffett by market participants, and Brown called the investor “the new Buffett” on a podcast in January 2021.

But by the end of 2021, it became clear that the SPAC boom had gone bust, and Palihapitiya’s reign as the so-called SPAC king came to an end as the bubble that had formed around blank-check firms burst.

The Buffett curse

The real roots of the curse may lie in the fact that Buffett displays a legendary patience to let his investments mature and compound for years, a trait that is hard to come by in a frenetic market full of FOMO.

Ultimately, Buffett’s success has not been in making a quick buck on Wall Street by hopping on the fad of the moment. His skill as an investor has been driven by his patience in buying high quality companies at appealing valuations and sitting on them for decades.

Source link