June 10, 2023

Curse of the ‘next Warren Buffet’: Sam Bankman-Fried is the latest market icon to fall after being compared to the legendary investor

  • The curse of Warren Buffett is alive and well after the collapse of Sam Bankman-Fried and his crypto exchange FTX.
  • Fortune magazine asked if Bankman-Fried was the next Warren Buffett in an August profile.
  • Other market icons once compared to Buffett, who have since faded, include Eddie Lampert, Bill Ackman and Chamath Palihapitiya.

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

But it may feel more like a curse, as several market icons once dubbed “the next Warren Buffett” have ended up flaring up in spectacular fashion, the latest example being FTX’s Sam Bankman-Fried.

Fortune put Bankman-Fried on the front page of its August issue and asked 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 using crypto.

But just three months later, Bankman-Fried has imploded in spectacular fashion after his FTX crypto exchange filed for bankruptcy due to a severe liquidity crisis, costing investors and potentially FTX customers more than $10 billion.

Bankman-Fried is not the first market icon to fall after being called the next Oracle of Omaha. Here are three other investors who have struggled to compare the legendary head of Berkshire Hathaway.

Eddie Lampert

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

The profile came about after Lampert led a successful turnaround at Kmart, which became a profitable business for Lampert and investors after bankruptcy. “Is he going to build a new Berkshire Hathaway out of it?” the paper asked.

Answer: no.

As chairman of Sears Holdings, Lampert orchestrated the takeover of Kmart with the goal of turning around the two struggling retailers. But then an e-commerce scammer called Amazon ruined those plans. The end result was a long and winding road to bankruptcy that saw the complete destruction of Sears’ value, leading to the complete closure of the once-iconic retailer.

Bill Ackman

In a 2015 special issue of Forbes magazine, hedge fund manager Bill Ackman was put on the cover under the headline “Baby Buffett”.

“The loudmouth of Wall Street made more than a billion dollars last year. Now he’s quietly creating the next Berkshire Hathaway,” the magazine’s cover said. The profile came after Ackman made big money with pharmaceutical companies Valeant and Allergan, and while the investor was in a short-selling campaign against Herbalife.

Just three months after the magazine’s profile, the price-gouging drug scandal hit Valeant hard, sending its stock quickly down more than 90%. Ackman’s treatise on the health care company, which he called a Berkshire Hathaway-like platform company, was debunked. Later, Ackman’s short bet against Herbalife cost him nearly a billion dollars.

Ackman eventually bounced back, and despite his heavy losses in 2015, ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ ​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ Above his price, he is respected for his proactive bets on macro developments, and for his macro developments, he is among the hedge fund elite.

Chamath Palihapitiya

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

Several Palihapitiya SPACs skyrocketed in value during the SPAC boom of 2020 and the early months of 2021. And investors were paying attention, including Josh Brown of Ritholtz Wealth Management.

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

But by the end of 2021, it became clear that the SPAC boom had collapsed, and Palihapitiya’s reign as the so-called SPAC king ended when the bubble around empty check companies burst.

The curse of the buffet

The real roots of the curse may lie in Buffett’s legendary patience for allowing his investments to mature and grow for years, a trait that is difficult to achieve in a frenetic market filled with FOMO.

Ultimately, Buffett’s success has not been about making a quick buck on Wall Street by jumping on the bandwagon of the moment. His skill as an investor has guided his patience to buy high-quality companies at attractive valuations and sit on them for decades.

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