Better than Buffett

Better than Buffett

“never put yourself in a situation where you have to sell something in an environment where you should be buying."

Bruce Flatt, CEO of Brookfield Asset Management, taken from Forbes.

Thus read my note next to Bruce Flatt's name on our short list for potential CEOs of the Year. And indeed, when we first reached out to see if he would agree to be profiled, the billionaire CEO of Brookfield Asset Management was less than enthusiastic. "I don't like media focus on me and like awards less," he wrote, "but let me reflect on this over the week." "Flatt rarely does interviews--his last extended sit-down with a Canadian publication was years ago--so we were excited when he followed up a week later to say he was in. But there was a condition: He would only do it if we featured the other four CEOs at Brookfield as well.

What could we say? We had our misgivings, but it would be fruitless to haggle with such an effective negotiator. He'd win--and besides, he had a good point: Brookfield is unique in that it actually does have five fully functioning CEOs, each one running a separate listed company with its own ticker.

That's why, on page 26 of this issue, you'll find not one, but five CEOs of the Year. This is the first time the magazine has featured multiple winners, but I have no regrets. Award-winning journalist Eric Reguly has penned a fascinating profile of the CEOs and their respective companies.

In it, he shows how they have grown what was once a mangle of unrelated investments into one of the largest, most disciplined and most profitable asset managers in the world.

As an investor myself, I can't help but wonder how Flatt does it. It's true he invests in alternative assets rather than stocks, but many of the same basic principles apply. Below, I've had a stab at pinning down five investing rules he seems to follow that account for his stunning success.

- Never pay full price. Some investors make a lot of money by jumping on trends, buying up assets in hot markets and riding the surge. Not Flatt. Asked to describe what Brookfield does, he sums up how his hideously complex bundle of companies operates in 11 words: They buy high-quality assets for less than their replacement cost.

In other words, every time they buy a massive office tower or billion-dollar power company, they buy it on sale.

- Hunt where no one else is hunting . So how does Brookfield find shopping malls, wind farms, toll roads and cell towers at discount prices? They do it by looking for sellers who are under duress and situations in which there are few competing buyers. That's why Flatt is expanding around the world. Lately, he's been buying up infrastructure in places like Chile, Brazil and India, where there's less investable capital and less competition.

- Think long-term. If you're buying for a short-term flip, you can chase bubbles, and you don't have to be too picky about quality. But that kind of investing is risky: When the bubble pops, you might be left holding the bag. If, on the other hand, you always buy top quality (Brookfield prefers assets that appreciate over time) and pay less than the asset is worth, once the deal is signed, there's not much that can go wrong.

- Move fast. Just because Flatt and his fellow CEOs are risk-averse doesn't mean they dither and overanalyze. Once they spot an asset they like, they do their research and wait. And when opportunity knocks--such as when there's a forced sale due to a bankruptcy, merger or regulatory change--they strike like a viper.

- Don't invest to get rich. I've spent much of my career studying successful investors, and one of the central ironies I've discovered is that the best investors aren't focused on personal wealth. Greed can cloud your thinking, and the top performers look at the numbers dispassionately and are prepared to walk if they don't add up.

Just look at Warren Buffett: He lives in a comfortable, but not opulent, house, and he obviously doesn't spend great pots of money on his clothes or cars. Similarly, despite his estimated net worth of $1.4 billion (U.S.), Bruce Flatt's Toronto home is an unremarkable two-storey townhouse in Summerhill. He's been known to drive a beater--or take the subway--and, despite its CEOs trotting the globe almost constantly, Brookfield has no corporate jet.

On that point, Flatt is actually out-Buffetting Buffett. Years ago, the Oracle from Omaha famously capitulated on his "no corporate jet" rule, buying a Bombardier Challenger 600 he nicknamed "The Indefensible." Could Buffett be going soft? If so, he had better watch out. The performance of his company, Berkshire Hathaway, is legendary: It's up 120% over the past five years. But Brookfield's performance is even better--it's up by 150%.

/Duncan Hood (robmagletters@globeandmail.com)
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