Warren Buffett or Fidelity Magellan?

Berkshire Hathaway (NYSE:BRK.A) is a collection of 70 investments that have a collective value of $126 billion. In this eclectic portfolio are investments in Coca Cola (NYSE:KO), Johnson and Johnson (NYSE:JNJ) to American Express (NYSE:AXP) to insurance concerns, carpeting firms to a furniture firm. There appears no rhyme or reason and the disparity is so vast. So why is Berkshire so successful? Why not just buy a monster fund like Fidelity's Magellan and just call it a day?

Berkshire is totally strategic in their approach. Each business is viewed from a long term point of view, the stock price and stock market be damned. Buffett has always maintained that if a business is managed properly and for the long term, the value placed on the investment by the stock market will figure it out correctly. Remember, Buffett once said the stock market short term is a voting machine, long term it is a weighing machine. He's right.

The Fidelity Magellan Fund (FMAGX) has over $46 billion in assets, and quite frankly, has seen better days. The past three years annual return has been 7.6% on average, below its comparable peer group. It is a collection of over 350 investments and yet, its returns have been blah. So what gives? Magellan has to be competitive to attract new dollars not only to its own fund, but to the Fidelity family of funds. Berkshire Hathaway can take its sweet old time and not worry about a down year or two. Buffett has made it imminently clear that investors own Berkshire because they believe in the long term structure and value-building proposition. Fidelity Magellan needs to post up quarterly results and gets instantly compared to its peer group. This does not allow the fund manager to think in longer term time horizons, although he states he does. Investment decisions are then sometimes made to satisfy the calender versus the potential of the investment. But he is serving two masters--the shareholders and the competitive positioning of Magellan. It is a tough way to manage and think long term.

Meanwhile, Warren Buffett has set up a brand new game that investors will relish in watching as events unfold: finding his successor. I doubt that person will come from the mutual fund world.

Georges Yared is the author of "Stop Losing Money Today" and "Baby Boomer Investing...Where do we go from here?"