The Sages: Warren Buffett, George Soros, Paul Volcker and the Maelstrom of Markets

By CHARLES MORRIS

If Charles Morris were a guy who likes to say, “I told you so,” he’d have plenty to talk about. In March 2008 — when unemployment had just edged above 5 percent and talk of a four-figure Dow might have gotten you laughed off the set at CNBC — Morris published The Trillion Dollar Meltdown, warning that the economy was heading for big trouble.

Fast-forward to the summer of 2009 (who’d want to relive those turbulent intervening months?). Instead of gloating, Morris is now offering a relatively upbeat message in Sages: Warren Buffett, George Soros, Paul Volcker and the Maelstrom of Markets. I stress relatively upbeat. Morris does not forecast a speedy recovery. But he does assure us that, while it may seem as if nobody really understands anything about the economy, there are three men who do.

“All three embody what the Romans called ‘virtue’ — steadfastness, consistency, devotion to principle,” Morris writes. The book includes three long biographical essays, each covering the childhood, career, and philosophy of one of the “Sages.” Morris also explores how listening to these men could help us out of the current crisis.

Of the three, Volcker will potentially have the most direct influence, now that President Obama has tapped the octogenarian former Fed chair to head up an economic advisory panel. If Morris is right, Obama should pay particularly close attention to his advice — while The Sages praises Soros and Buffett, the author all but venerates Volcker. “If there were a Nobel Prize for government service, Volcker’s would be one of the names on the short list,” he writes.

From 1979 to 1987, while Soros and Buffett were building their own fortunes, Volcker was busy rescuing the American economy (and earning a comparatively paltry government salary). When President Jimmy Carter appointed him chairman of the Federal Reserve Board, the U.S. had a double-digit inflation rate. Morris portrays Volcker as a financial Superman, leaping over OPEC, wily bankers, fearful politicians, and neo-Keynesians to stop runaway inflation before it crushed us all.

How did Volcker do it? The short answer is that he tightened the money supply. The long answer is in the book. Morris, a lawyer, former banker, and the author of 12 books, revels in providing detailed explanations of events, whether it’s Volcker’s victory over inflation or how Soros caused the value of the British pound to drop by 10 percent. This kind of full disclosure has its faults. At times, Morris can sound a bit like a droning college professor: “The eclipse of neo-Keynesianism amid the inflationary fiasco of the 1970s led to a recovery of the old neoclassical economics associated with the Chicago School, and a burst of theorizing under the rubric of the ” ‘New Classicals.’ ” Much better are the cathartic moments, such as this blast at do-nothing regulators: “In reality, the theories were just craven self-exoneration — academic cover for why the authorities stood aside and let Wall Street blow up the world.”

While Volcker comes in for the lion’s share of praise, the intriguing essays that paint George Soros and Warren Buffett are no less fascinating — doubly so when set side by side. Both men were born in August 1930. Both are self-made billionaires. And they rose to the top of the same game by using essentially opposite strategies. Soros is “the global predator?He moves in and out of positions quickly and omnivorously — commodities, currencies, stocks, bonds.” Meanwhile, back in Omaha, “Buffett is the classic hyperanalytic value-seeker. He does deep research, buys relatively infrequently, and typically holds his positions for many years.”

So what’s an investor to do — short the pound or buy shares in a nice, solid insurance company? Sorry, it’s not that kind of book. Morris’s point is that both men win by using common sense and independent thinking while others chase fads or trust academic theories.

Of course, it also helps to be brilliant. Soros, for example, has a seemingly innate ability to anticipate shifts in world markets. He takes advantage of “reflexivity” — the idea that markets act erratically because they’re driven by (often irrational) human behavior. “If markets are so efficient,” Soros asks, “why are they always breaking down?” Morris continues, “He might have added, ‘And how could it be possible for me to make so much money betting that they will?’ ” Ironically, the plan Soros advances to lift the economy out of recession is heavy on increased regulation and oversight — strikingly so considering that Soros has gotten rich by pouncing when markets go haywire. But then, with an estimated net worth of $11 billion — and that’s after giving away $6 billion through his Open Society Institute — he can afford to deal with a few changes.

Writing about Buffett, Morris faced two challenges. First, unlike Volcker and Soros, Buffett declined to be interviewed for the book. Second, Buffett is such an icon it’s hard to say much about him that readers of the business press don’t already know. Morris gets around both obstacles with finesse, using published sources to present a portrait that, while not particularly surprising, is still compelling. We see Buffett as a socially awkward boy whose entrepreneurial drive emerged early. By age six he was selling gum and Coca-Cola door-to-door. By high school, he was operating several small businesses.

With a net worth of $37 billion, Buffett is the second-richest person in the world. His brand of down-to-earth financial wisdom is memorably highlighted in his quotable annual letters to the shareholders of his holding company, Berkshire Hathaway. In 1989 he opined, “Deal promoters have throughout time exercised the same judgment and restraint in accepting money that alcoholics have exercised in accepting liquor,” and the following year noted, “Mountains of junk bonds were sold by those who didn’t care to those who didn’t think — and there was no shortage of either.”

Not even Buffett, though, was immune to the havoc of 2008. Last year Berkshire Hathaway suffered a 9.6 percent drop in per-share book value. Yet, as Morris points out, Buffett still beat the S&P Index by 27.4 percent. And for a buy-and-hold investor, a one-year drop is nothing to get upset about.

And for the record, Soros’s hedge fund was up 8 percent last year. Soros admits to making a number of bad moves in 2008. But, true to form, he salvaged the year with smart fourth-quarter bets on the value of the U.S. dollar and U.K. interest rates.

After months of news dominated by swindlers, dupes, and greedy bastards, it’s refreshing and reassuring to read about financial experts who have real wisdom to offer. Still, as all three are past the average life expectancy, one has to ask: Is there a generation of young sages in the making? Or are we witnessing the end of an era?

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