In China, Warren Buffett is 'the God of stock investing'

The billionaire's fan club extends far and wide in the country, and tourists flock to Omaha to get a closer look.

By MSN Money Partner Jun 3, 2014 2:19PM
Credit: © Rick Wilking/Reuters

Caption: A huge picture of Berkshire Hathaway Chairman Warren Buffett looks over shareholders swarming the exhibit floor at the company's annual meeting in Omaha May 4, 2013By Major Tian, MarketWatch

On a bleak Friday afternoon in early May, a bus pulled up outside the CenturyLink Center in downtown Omaha, Neb. Cameras in hand, about two dozen Chinese tourists filed out.


They posed for pictures with the few sculptures at the convention center's entrance. "So this is where the meeting will be," one of them said.


For most global tourists, downtown Omaha isn't a destination on their bucket list.


But for an increasing number of Chinese attendees, Berkshire Hathaway (BRK.A) annual shareholder meeting in Omaha has become a pilgrimage of sorts. At this most recent meeting, 1,000 visitors from China showed up.


Their must-see list included a visit to Berkshire's office building, the neighborhood chairman Warren Buffett lives in, and the steak house where he and Bill Gates consume root beer floats. And most importantly, they lined up in the pre-dawn hours to get into the six-hour Q&A session held by Buffett and his business partner Charlie Munger.


Missed Buffett's last quip? Chinese-language media were there to help.


Hailing from outlets including government mouthpiece Xinhua and CCTV, they outnumbered their peers from other foreign countries. They were there to make sure that whenever the 83-year-old Buffett shared a word of wisdom, it would be immediately translated into Chinese.


'God of stock investing'

The attraction for Buffett's Chinese acolytes was a chance to hear his tips on investing, with the goal of bringing that investment philosophy back to China. Largely through asset management firms that tout their Buffett-like strategy, these Chinese value investors are seeking to mimic the strategy that has made him a billionaire.


But they face an uphill battle. Numerous accounts of fraud at Chinese companies have scared many retail investors from their local market.


For "99 percent of the time the Chinese stock market is like a giant casino,” said Zhang Feng of private equity firm Gingko at a reception organized by Chinese financial news site Sina Finance and Shanghai's Aegon-Industrial Fund Management. "It's much harder to practice value investing there than in the U.S."


Harder, but not impossible. In the evening after the Buffett/Munger presentation, a Chinese-language panel discussion around Buffett's investment strategies attracted more than 250 people, predominantly retail investors and finance professionals from China. A year ago, a similar event drew 120 people.


Before the discussion started, the crowd was greeted by officials from Omaha's Chamber of Commerce, the dean of UNO's business school, and through a pre-recorded video speech, Warren Buffett's youngest son Peter.


Inside the Hilton ballroom where the cocktail reception took place, the "sage of Omaha" was described in even more laudatory terms than he receives in the U.S. press. Buffett, according to one presentation, is "the God of stock investing," a ubiquitous handle for Buffett in China.


"Investment is always a game for long-distance runners," said Chen Jinquan, a fund manager sitting on a panel at the reception. He defending Buffett's failure to beat the Standard & Poor's 500 Index ($INX) in the most recent cycle. "What happened in five years doesn't really mean that much."


"Buffett made many successful investments in consumer product companies. And that's the area where we see potentials for value investing in China," said Zhang Feng of private-equity firm Gingko. His company's investments include a handful of Chinese liquor and food producers, as well as financial service companies and real estate developers. According to its website, Gingko recorded a 77 percent compound annual growth between 2003 and 2012.


In China, Buffett's fan club goes well beyond those who made it to Omaha this year. One of the most well-known is Zhao Danyang, who in 2008 spent $2.1 million at a charity auction for a lunch date with Warren Buffett. Zhao, known as the godfather of private equity in China, runs a Hong Kong-based fund firm called Pureheart Asset Management. Since it was founded in 2003, the company's net asset value has grown more than 862 percent, its website says.


The Buffett cult has attracted China's wealthiest entrepreneurs as well. Guo Guangchang, president of Fosun Group, a Chinese conglomerate that has bought One Chase Manhattan Plaza in New York, is one of "China's Buffetts," according to Chinese media.


Learning from Buffett's success in funding stock investments through his insurance businesses, Fosun formed a $78 million joint insurance company with Prudential Financial in 2011; earlier this year, it spent more than $1.4 billion on Portuguese Insurance Group, the largest insurer in Portugal. The company also has stakes in domestic insurers such as Yong An Property Insurance Company and Peak Reinsurance.


"I'm just Buffett's apprentice," Guo told CNBC in an interview last year. "We hope to build on our own strengths and become his successful disciples in China."


But what people admire is usually what they can't have. In China's underdeveloped capital market, finding good companies at a bargain is no cakewalk. It's especially true for retail investors, many of whom have lost faith in a market inundated with frauds, insider trading and price manipulations.


On the other hand, many strong Chinese companies such as Tencent Holdings (TCEHY) and Lenovo Group Ltd. chose to list in Hong Kong or other overseas markets. In 2014, at least eight Chinese companies have listed in the U.S., while a dozen others are expected to follow suit, including e-commerce giant Alibaba. Most Chinese retail investors don’t have access to those markets, due to foreign exchange regulations.


Stuck with an anemic market at home, people have no choice but to invest their money into real estate. A Bloomberg survey in February showed that 66.1 percent of Chinese families assets were in housing; a 2013 study done by Southwestern University of Finance and Economics in Chengdu showed a higher rate of 75.5 percent.


But there's a silver lining for Warren Buffett’s Chinese fans. Zhao Danyang, who liquidated all his trust funds in mainland China in 2008 before the Shanghai Composite Index dived 60 percent, has now come back. Betting on a bull market within the next five years, he has reportedly bought shares of liquor producer Maotai, roast duck restaurant Quan Jude and state-owned enterprise Sinopec, among others.


"If something that's worth 20 yuan is being sold at 10, you know it's going to make a comeback," Zhao told a group of investors during a meeting in Shenzhen, according to Shanghai Securities News. "If you bought it at 10, even if it takes five years to go back to 20, it is still not a bad business."


Zhao's theory takes the long view, similar to his investing mentor. In his letter to shareholders earlier this year, Buffett advised investors to be able to estimate an earnings range for their investments for five years out or more.


"Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions," wrote Buffett. To this, he said: "Ignore the chatter . . . and invest in stocks as you would in a farm."


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4Comments
Jun 3, 2014 6:52PM
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Based on this article, the Chinese don't appear as smart at math as we were lead to believe . . . either that or they really do need to temper their belief in gods roaming the Earth.

If you look at a comparison plot of the last five years of BRK.A versus the S&P 500 index and the NASDAQ Composite, you find that BRK.A underperformed one or both indices about 80% of the time.  Moreover, at the end of the last five years, BRK.A had gained only 9 percentage points more than the S&P500 (which gained 105%) but it actually fell short of matching the NASDAQ Composite gain by a whopping 16%.  'Nuff said.
Jun 3, 2014 3:53PM
avatar
I wouldn't cross the street to see that fat old f*** or anything he is associated with.
Jun 3, 2014 6:03PM
avatar
Maybe they should just learn how to manipulate the markets like the Banksters do.
Jun 3, 2014 3:10PM
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Ahhhsoooo, we all bow at the feet of Buffysan.....If that's Japanese, I apologize.
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