(c) 2010 F. Bruce Abel
Has Buffett "explained" and put the cap on this spewing vomit called Abacus? And by implication its ilk? By saying the main loser was ABN Amro? Does that mean only some rich hedge fund, or country-fund, lost out? Ultimately there are mom and pops who put their money into whatever hedge fund or country-fund, aren't there? Pensions and insurance companies.
So how does the AIG bailout compare in structure with Abacus? I think somewhat identical. And there we have hundreds of billions of taxpayer money used directly.
Click on title above for the source of the following.
Buffett said the main "loser" in the Goldman situation, which includes civil fraud charges alleging the investment bank misled investors, and a criminal investigation, was European bank ABN Amro, which guaranteed the credit of another bank in the deal, to the tune of about $900 million.
"In the end, they made a dumb insurance decision," Buffett said. "It's a little hard for me to get sympathetic that a bank made a dumb deal."
By contrast, Buffett said his company has remained conservative and stuck with deals "we understand." He gave as an example a deal brought to Berkshire two years ago by Lehman Brothers, in which Berkshire guaranteed the bonds of about a dozen states for 10 years. Included was $700million worth of bonds issued by Ohio.
"If we lose a lot of money on these bonds, I'm not going to go to the person on the other side of the deal and say, 'Gee, you took advantage of me,'" he said.
Buffett and Munger both stressed that the government's charges against Goldman remain allegations, with no wrongdoing proved at this point.
Showing posts with label Warren Buffett. Show all posts
Showing posts with label Warren Buffett. Show all posts
Monday, May 3, 2010
Tuesday, March 2, 2010
Andrew Ross Serkin and The Buffett Annual Letter to Shareholders
Buffett Casts a Wary Eye on Bankers
·
By ANDREW ROSS SORKIN
Published: March 1, 2010
“Don’t ask the barber whether you need a haircut.”
Daniel Acker/Bloomberg News
In his annual letter, Warren Buffett took a shot at Wall Street and the incentive system for corporate “advice” on deals.
That little nugget was buried in Warren E. Buffett’s annual letter to Berkshire Hathaway shareholders published over the weekend. It was his thinly veiled dig at Wall Street bankers and the perverse incentive system for corporate “advice” on mergers and acquisitions — namely that bankers are paid only if a deal is completed. (Bankers typically earn nothing if a deal is abandoned or collapses, giving them little reason to recommend against pursuing a transaction.)
It was a timely note from Mr. Buffett — Monday ushered in more than $50 billion worth of merger announcements — and it resurrected an age-old debate on Wall Street about how bankers are compensated for their counsel to corporate boards.
And it’s an issue that resonates far beyond Wall Street. Just think of all the other parts of life where people offer only encouraging words — “You should do this!” — because that’s the only way they get paid (real estate agents, stock brokers, the list goes on).
And Mr. Buffett has trained his sociologist’s eye on this phenomenon more broadly, too. In his 1989 letter to shareholders, he famously wrote about the “institutional imperative,” which describes, among other things, how an entire organization can rise up to help a boss justify some deal he’s inclined to do, regardless of its merit.
It’s nice to think some things can change, but the deal incentive for bankers probably isn’t one of them.
“You shouldn’t earn a lot less by keeping your client from doing something stupid, but that’s the way it is,” Felix Rohatyn, the financier and elder statesman of Wall Street, told me. “The majority of fees are conditional.”
Mr. Buffett’s letter made a bold suggestion that isn’t sitting well with the establishment.
“When stock is the currency being contemplated in an acquisition and when directors are hearing from an advisor, it appears to me that there is only one way to get a rational and balanced discussion,” he wrote. “Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through.”
Of course, acquirers often hire more than one banker to advise a board, to act as a check on the other. But all too often, both banks are given the incentive to recommend the deal.
Since 2008 in the United States, in 131 of the 230 deals that were worth over $1 billion, the acquirer hired more than one bank, and in some cases more than five. Those banks were paid an estimated $3.3 billion for advisory services, according to Thomson Reuters and Freeman Consulting.
The problem, as Mr. Buffett explained when I called him on Monday, is that the system is skewed. Companies are willing to pay advisers a supersize fee when they do a deal because then it is merely a rounding error, a tip on a lavish, celebratory meal.
It would be hard to justify a big payment if there were no deal, so the system has evolved into an all-or-nothing game. Banks are willing to play it, because the rewards are so high, and they are not shy about offering attaboys and go-get-em’s to help make it happen.
When Berkshire recently acquired Burlington Northern, Goldman Sachs and Evercore Partners — which advised Burlington — were paid almost $50 million for what equated to only a couple of weeks of work.
Mr. Buffett, of course, did not use an investment banker.
“If we need advice for a deal, we probably shouldn’t be doing it,” he said with his trademark chuckle. He told a story about how First Boston (now Credit Suisse) tried to gin up interest in the mid-1980s for Scott Fetzer, a hodgepodge of small businesses based in Cleveland. It called on 30 firms to help make a sale, but failed to find a buyer.
Mr. Buffett then called Scott Fetzer’s chief executive himself and negotiated the deal face to face. Just as they were about to sign the deal, a banker for First Boston said that the bank was still entitled to a $2 million fee. The banker asked Mr. Buffett’s partner, Charlie Munger, whether he’d like to read the firm’s analysis of Scott Fetzer. Mr. Munger replied, “I’ll pay $2 million not to read it.”
That’s not to say that Mr. Buffett won’t ever pay investment bankers. “If someone brings me a deal, I’m more than willing to pay them,” he said, referring to his favorite banker, Byron Trott, a former managing director at Goldman Sachs, who helped broker deals including Berkshire’s investment in the $23 billion Mars-Wrigley merger and its acquisition of Marmon Holdings. However, Mr. Buffett insists that typically, “I don’t think we’ve ever paid for advice.”
Mr. Buffett’s biggest gripe is not just that bankers are given improper incentives, but he thinks their advice is suspect, especially when valuing stock-for-stock deals.
He had some experience this past year with such deals when Berkshire bought Burlington (he issued 80,932 Class A shares and 20 million B shares). He was also uncharacteristically vocal with his criticism of Kraft for paying $19.6 billion for Cadbury, much of it in stock (he’s a big Kraft shareholder).
He thinks that too much attention is paid to the value of the company that may be acquired, and not enough attention is focused on the value of the stock that the acquirer is shelling out.
“In more than 50 years of board memberships, however, never have I heard the investment bankers (or management!) discuss the true value of what is being given,” he wrote in his letter.
“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy. The reason for our distaste is simple. If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ‘sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger?”
Despite hearing from some of Wall Street’s biggest names about Mr. Buffett’s critique of their profession on Monday, most were circumspect in their reply.
“As usual, Mr. Buffett has an interesting point,” said Joseph Perella, one of the deans of the deal business and the co-founder of Perella Weinberg. He said he was happy to report that some clients had begun paying flat quarterly fees for advice, regardless of whether his firm recommended for or against a deal. However, he acknowledged, “most clients aren’t doing that.”
When I invited Mr. Rohatyn to critique Mr. Buffett’s view of his profession, he replied, as so many in the business did: “Warren is Warren,” is all he would say.
•
I will once again be in Omaha for Berkshire Hathaway’s annual meeting on May 1 asking questions of Mr. Buffett and Mr. Munger. If you have questions for either gentleman, please send them to arsorkin@nytimes.com. (Let me know if I can identify you by name if I ask your question. Also, please tell me if you’re a Berkshire shareholder.)
The latest news on mergers and acquisitions can be found at nytimes.com/dealbook.
·
By ANDREW ROSS SORKIN
Published: March 1, 2010
“Don’t ask the barber whether you need a haircut.”
Daniel Acker/Bloomberg News
In his annual letter, Warren Buffett took a shot at Wall Street and the incentive system for corporate “advice” on deals.
That little nugget was buried in Warren E. Buffett’s annual letter to Berkshire Hathaway shareholders published over the weekend. It was his thinly veiled dig at Wall Street bankers and the perverse incentive system for corporate “advice” on mergers and acquisitions — namely that bankers are paid only if a deal is completed. (Bankers typically earn nothing if a deal is abandoned or collapses, giving them little reason to recommend against pursuing a transaction.)
It was a timely note from Mr. Buffett — Monday ushered in more than $50 billion worth of merger announcements — and it resurrected an age-old debate on Wall Street about how bankers are compensated for their counsel to corporate boards.
And it’s an issue that resonates far beyond Wall Street. Just think of all the other parts of life where people offer only encouraging words — “You should do this!” — because that’s the only way they get paid (real estate agents, stock brokers, the list goes on).
And Mr. Buffett has trained his sociologist’s eye on this phenomenon more broadly, too. In his 1989 letter to shareholders, he famously wrote about the “institutional imperative,” which describes, among other things, how an entire organization can rise up to help a boss justify some deal he’s inclined to do, regardless of its merit.
It’s nice to think some things can change, but the deal incentive for bankers probably isn’t one of them.
“You shouldn’t earn a lot less by keeping your client from doing something stupid, but that’s the way it is,” Felix Rohatyn, the financier and elder statesman of Wall Street, told me. “The majority of fees are conditional.”
Mr. Buffett’s letter made a bold suggestion that isn’t sitting well with the establishment.
“When stock is the currency being contemplated in an acquisition and when directors are hearing from an advisor, it appears to me that there is only one way to get a rational and balanced discussion,” he wrote. “Directors should hire a second advisor to make the case against the proposed acquisition, with its fee contingent on the deal not going through.”
Of course, acquirers often hire more than one banker to advise a board, to act as a check on the other. But all too often, both banks are given the incentive to recommend the deal.
Since 2008 in the United States, in 131 of the 230 deals that were worth over $1 billion, the acquirer hired more than one bank, and in some cases more than five. Those banks were paid an estimated $3.3 billion for advisory services, according to Thomson Reuters and Freeman Consulting.
The problem, as Mr. Buffett explained when I called him on Monday, is that the system is skewed. Companies are willing to pay advisers a supersize fee when they do a deal because then it is merely a rounding error, a tip on a lavish, celebratory meal.
It would be hard to justify a big payment if there were no deal, so the system has evolved into an all-or-nothing game. Banks are willing to play it, because the rewards are so high, and they are not shy about offering attaboys and go-get-em’s to help make it happen.
When Berkshire recently acquired Burlington Northern, Goldman Sachs and Evercore Partners — which advised Burlington — were paid almost $50 million for what equated to only a couple of weeks of work.
Mr. Buffett, of course, did not use an investment banker.
“If we need advice for a deal, we probably shouldn’t be doing it,” he said with his trademark chuckle. He told a story about how First Boston (now Credit Suisse) tried to gin up interest in the mid-1980s for Scott Fetzer, a hodgepodge of small businesses based in Cleveland. It called on 30 firms to help make a sale, but failed to find a buyer.
Mr. Buffett then called Scott Fetzer’s chief executive himself and negotiated the deal face to face. Just as they were about to sign the deal, a banker for First Boston said that the bank was still entitled to a $2 million fee. The banker asked Mr. Buffett’s partner, Charlie Munger, whether he’d like to read the firm’s analysis of Scott Fetzer. Mr. Munger replied, “I’ll pay $2 million not to read it.”
That’s not to say that Mr. Buffett won’t ever pay investment bankers. “If someone brings me a deal, I’m more than willing to pay them,” he said, referring to his favorite banker, Byron Trott, a former managing director at Goldman Sachs, who helped broker deals including Berkshire’s investment in the $23 billion Mars-Wrigley merger and its acquisition of Marmon Holdings. However, Mr. Buffett insists that typically, “I don’t think we’ve ever paid for advice.”
Mr. Buffett’s biggest gripe is not just that bankers are given improper incentives, but he thinks their advice is suspect, especially when valuing stock-for-stock deals.
He had some experience this past year with such deals when Berkshire bought Burlington (he issued 80,932 Class A shares and 20 million B shares). He was also uncharacteristically vocal with his criticism of Kraft for paying $19.6 billion for Cadbury, much of it in stock (he’s a big Kraft shareholder).
He thinks that too much attention is paid to the value of the company that may be acquired, and not enough attention is focused on the value of the stock that the acquirer is shelling out.
“In more than 50 years of board memberships, however, never have I heard the investment bankers (or management!) discuss the true value of what is being given,” he wrote in his letter.
“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy. The reason for our distaste is simple. If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ‘sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger?”
Despite hearing from some of Wall Street’s biggest names about Mr. Buffett’s critique of their profession on Monday, most were circumspect in their reply.
“As usual, Mr. Buffett has an interesting point,” said Joseph Perella, one of the deans of the deal business and the co-founder of Perella Weinberg. He said he was happy to report that some clients had begun paying flat quarterly fees for advice, regardless of whether his firm recommended for or against a deal. However, he acknowledged, “most clients aren’t doing that.”
When I invited Mr. Rohatyn to critique Mr. Buffett’s view of his profession, he replied, as so many in the business did: “Warren is Warren,” is all he would say.
•
I will once again be in Omaha for Berkshire Hathaway’s annual meeting on May 1 asking questions of Mr. Buffett and Mr. Munger. If you have questions for either gentleman, please send them to arsorkin@nytimes.com. (Let me know if I can identify you by name if I ask your question. Also, please tell me if you’re a Berkshire shareholder.)
The latest news on mergers and acquisitions can be found at nytimes.com/dealbook.
Saturday, November 21, 2009
Duplicate Bridge and Options Players
(c) 2009 F. Bruce Abel
From November 11, 2009 CNBC clip on duplicate bridge and Bill Gates and Warren Buffett.
Interview with Barry Rigal, who, it turns out, has a British accent, or else he is weird.
http://www.msnbc.msn.com/id/21134540/vp/33890874#33890874
From November 11, 2009 CNBC clip on duplicate bridge and Bill Gates and Warren Buffett.
Interview with Barry Rigal, who, it turns out, has a British accent, or else he is weird.
http://www.msnbc.msn.com/id/21134540/vp/33890874#33890874
Sunday, November 8, 2009
Buffett's Subtle Bet Against the Dollar
(c) 2009 F. Bruce Abel
From Baseline Scenario and Simon Johnson himself, not Kwak. This article is huge.
The Baseline Scenario
Warren Buffett And The G20
Posted: 07 Nov 2009 03:53 AM PST
The G20 Finance Ministers and Central Bank governors are meeting today in St. Andrews, talking about the data they will need to look at in order to monitor each other’s economic performance and sustain growth (seriously).
The underlying idea is that if you talk long enough about the US current account deficit and the Chinese surplus, stuff happens and the imbalances will take care of themselves – or move on to take another form.
Warren Buffett seems to agree.
Buffett’s big investment in railroads looks like a shrewd way to bet on growth in emerging markets – which is where most incremental demand for US raw materials and grain comes from. It’s also a polite way to bet against the dollar or, even more politely, on an appreciation of the renminbi.
When China finally gives way to market pressure and appreciates 20-30 percent, their commodity purchases will go through the roof. You can add more land, improve yields, or change the crop mix of choice (as relative prices move), but it all has to run through Mr. Buffett’s railroad.
Of course, Buffett is nicely hedged against dollar inflation – this would likely feed into higher inflation around the world, and commodities will also become more appealing.
And Mr. Buffett is really betting against the more technology intensive, labor intensive, and industrial based part of our economy. If that were to do well, the dollar would strengthen and resources would be pulled out of the commodity sector – the more “modern” part of our production is not now commodity-intensive.
The G20 will stand pat, waiting for the recovery and hoping for the best; “peer review” will turn out to be meaningless. But this raises three dangers.
China will overheat, with capital inflows fuelling a giant credit boom. Books with titles like “China as Number One” and “The China That Can Say No” will appear. The boom-bust cycle will resemble that of Japan in the 1980s – you don’t need a current account deficit in order to experience a costly asset price bubble. Other emerging markets may follow a similar pattern (think India, Brazil, Russia.)
US and European banks will be drawn into lending to China and other emerging markets, directly or indirectly. In a sense this would be a re-run of the build-up of debt in Latin America and Eastern Europe in the 1970s, leading to the debt crisis of 1982 (remember Poland, Chile, Mexico). Banks with implicit government guarantees will lead the way.
We hollow out the middle of the global economy – with a few people doing ever better and most people struggling to raise their living standards. Increasing commodity prices hit hard at poorer people everywhere (recall the effects of the relatively mild run-up in food and energy prices in the first half of 2008). Global volatility of this nature helps big business but at the cost of undermining the middle class.
By betting on commodities, Mr. Buffett is essentially taking an “oligarch-proof” stance. Powerful groups may rise to greater power around the world, fighting for control of raw materials and driving up their prices further. As long as there is growth somewhere in emerging markets, on some basis, Mr. Buffett will do fine.
As for the G20, they are already a long way behind the curve.
By Simon Johnson
From Baseline Scenario and Simon Johnson himself, not Kwak. This article is huge.
The Baseline Scenario
Warren Buffett And The G20
Posted: 07 Nov 2009 03:53 AM PST
The G20 Finance Ministers and Central Bank governors are meeting today in St. Andrews, talking about the data they will need to look at in order to monitor each other’s economic performance and sustain growth (seriously).
The underlying idea is that if you talk long enough about the US current account deficit and the Chinese surplus, stuff happens and the imbalances will take care of themselves – or move on to take another form.
Warren Buffett seems to agree.
Buffett’s big investment in railroads looks like a shrewd way to bet on growth in emerging markets – which is where most incremental demand for US raw materials and grain comes from. It’s also a polite way to bet against the dollar or, even more politely, on an appreciation of the renminbi.
When China finally gives way to market pressure and appreciates 20-30 percent, their commodity purchases will go through the roof. You can add more land, improve yields, or change the crop mix of choice (as relative prices move), but it all has to run through Mr. Buffett’s railroad.
Of course, Buffett is nicely hedged against dollar inflation – this would likely feed into higher inflation around the world, and commodities will also become more appealing.
And Mr. Buffett is really betting against the more technology intensive, labor intensive, and industrial based part of our economy. If that were to do well, the dollar would strengthen and resources would be pulled out of the commodity sector – the more “modern” part of our production is not now commodity-intensive.
The G20 will stand pat, waiting for the recovery and hoping for the best; “peer review” will turn out to be meaningless. But this raises three dangers.
China will overheat, with capital inflows fuelling a giant credit boom. Books with titles like “China as Number One” and “The China That Can Say No” will appear. The boom-bust cycle will resemble that of Japan in the 1980s – you don’t need a current account deficit in order to experience a costly asset price bubble. Other emerging markets may follow a similar pattern (think India, Brazil, Russia.)
US and European banks will be drawn into lending to China and other emerging markets, directly or indirectly. In a sense this would be a re-run of the build-up of debt in Latin America and Eastern Europe in the 1970s, leading to the debt crisis of 1982 (remember Poland, Chile, Mexico). Banks with implicit government guarantees will lead the way.
We hollow out the middle of the global economy – with a few people doing ever better and most people struggling to raise their living standards. Increasing commodity prices hit hard at poorer people everywhere (recall the effects of the relatively mild run-up in food and energy prices in the first half of 2008). Global volatility of this nature helps big business but at the cost of undermining the middle class.
By betting on commodities, Mr. Buffett is essentially taking an “oligarch-proof” stance. Powerful groups may rise to greater power around the world, fighting for control of raw materials and driving up their prices further. As long as there is growth somewhere in emerging markets, on some basis, Mr. Buffett will do fine.
As for the G20, they are already a long way behind the curve.
By Simon Johnson
Wednesday, June 17, 2009
Sunday, March 8, 2009
Saturday, March 7, 2009
Friday, December 5, 2008
Buffett Insane?
That teaser got me to click on to this site and the comments are pretty good.
http://www.fool.com/investing/value/2008/11/28/is-buffett-insane.aspx
http://www.fool.com/investing/value/2008/11/28/is-buffett-insane.aspx
Tuesday, November 25, 2008
Buffett to Offer Details on Derivatives
See, Warren's derivatives are so long that he doesn't have to put up the money until 2019. But he gets the up-front fees on them now.
Who knows? Warren may be the worst of them all. He just doesn't have to reveal.
The article:
http://www.nytimes.com/2008/11/25/business/25buffett.html
Who knows? Warren may be the worst of them all. He just doesn't have to reveal.
The article:
http://www.nytimes.com/2008/11/25/business/25buffett.html
Friday, October 17, 2008
Warren
Warren Buffett invested in GE a couple of weeks ago, perhaps to save them.
GE is not participating in any rally because, in my opinion, it was doing all the dangerous derivative things without being a bank, banks now being protected from their folly by the federal reserve.
But there is some hinting that the feds will bail out GE too!
Here's an Op-Ed of Warren in today's NYT:
Op-Ed Contributor
Buy American. I Am.
writePost();
new_york_times:http://www.nytimes.com/2008/10/17/opinion/17buffett.html
By WARREN E. BUFFETT
Published: October 16, 2008
Omaha
Skip to next paragraph
Enlarge This Image
Brad Holland
Related
Times Topics: Warren E. Buffett
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
GE is not participating in any rally because, in my opinion, it was doing all the dangerous derivative things without being a bank, banks now being protected from their folly by the federal reserve.
But there is some hinting that the feds will bail out GE too!
Here's an Op-Ed of Warren in today's NYT:
Op-Ed Contributor
Buy American. I Am.
writePost();
new_york_times:http://www.nytimes.com/2008/10/17/opinion/17buffett.html
By WARREN E. BUFFETT
Published: October 16, 2008
Omaha
Skip to next paragraph
Enlarge This Image
Brad Holland
Related
Times Topics: Warren E. Buffett
THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Monday, October 6, 2008
Warren Buffett Behind the Scenes Last Week With Charlie Rose
Like J.P. Morgan, Warren E. Buffett Braves a Crisis
new_york_times:http://www.nytimes.com/2008/10/06/business/06buffett.html
By STEVE LOHR
Published: October 5, 2008
In the midst of a financial crisis, a towering figure of American business steps forward with his reputation and financial resources for public good and personal gain.
Their times and personalities are vastly different, of course. But J. Pierpont Morgan’s role in the Panic of 1907 has its echo in Warren E. Buffett’s actions during the current financial troubles.
“What Buffett is doing is similar in ways to what Morgan did in 1907,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. “It’s what you might call profitable patriotism.”
Comparing the two men and their moves in periods of market turmoil, just more than a century apart, reveals how much some things have changed over the years and how other things have not, according to business historians and finance experts.
Morgan was 70 during the financial crisis of 1907, in the twilight of his career. Mr. Buffett is 78. Like Morgan so long ago, Mr. Buffett now finds himself “at the center of things; he draws headlines and he inspires confidence,” said Robert F. Bruner, dean of the Darden School of Business at the University of Virginia, and a co-author with Sean D. Carr of “The Panic of 1907: Lessons From the Market’s Perfect Storm” (Wiley, 2007).
In the last two weeks alone, Mr. Buffett has exercised his influence mainly by investing in embattled blue-chip companies, committing a total of $8 billion to Goldman Sachs and General Electric. He drove hard bargains and invested on favorable terms.
Mr. Buffett has been fielding many phone calls recently because of his cash, his reputation and his ability to act quickly. The G.E. investment, for example, was put together in a matter of hours, after G.E. reached out to Mr. Buffett through his longtime banker at Goldman Sachs, Byron D. Trott.
“In the last few weeks, everyone who has been in trouble or thought they were in trouble has called him,” said Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life,” a biography released last week by Bantam. Ms. Schroeder, a former Wall Street analyst, is the first Buffett biographer to receive his cooperation, and she said she talked to him regularly.
The companies benefit from the credibility dividend that comes with the Buffett endorsement. Last Thursday, the day after he announced his investment in G.E., the company raised more than $12 billion in a public sale of shares.
Mr. Buffett is also the largest shareholder in Wells Fargo, which last Friday swept in with a $15 billion bid for another banking company, Wachovia, offering seven times what Citigroup did at the start of the week.
Mr. Buffett is the world’s richest person, topping this year’s ranking of billionaires by Forbes magazine with $62 billion. Mr. Buffett has pledged to give most of that fortune to charity upon his death.
Yet even more than money, Mr. Buffett brings the reputational capital that comes from being a peerless long-term investor, revered for his acumen and sound judgment.
“So there is immense signaling power to Buffett’s moves, showing others that now may be a good time to invest,” Mr. Bruner said.
Morgan wielded his power over the financial markets more directly than Mr. Buffett, though his personal wealth lagged the early 20th century industrial titans John D. Rockefeller and Andrew Carnegie.
In 1907, the United States had no central bank. The financial crisis began that year because trust companies handling wills and estates — firms long synonymous with safe investment — exploited legal loopholes and became wild speculators in the stock market. When those investments soured, the collapse of the trusts threatened the financial system.
Morgan stepped in and functioned as America’s central bank. The United States Treasury handed him $25 million (more than $550 million today) with the blessing of President Theodore Roosevelt — who was not a natural Morgan ally, given his aversion for big business and its leaders, memorably deriding them as “malefactors of great wealth.”
But those were dire economic times. Morgan gathered his fellow financiers at his Manhattan mansion and hammered out a rescue plan. After a few rocky weeks, the panic subsided.
“In 1907, Morgan was not only committing some of his own money but also organizing the entire financial community to join in the rescue,” said Ron Chernow, a business historian and the author of “The House of Morgan” (Atlantic Monthly Press, 1990).
Indeed, Mr. Chernow said, one motivation for creating the Federal Reserve in 1913 was that Morgan would not be around forever. Morgan died that same year.
Morgan also used the power of his personality and public statements to try to sway market behavior and psychology. In the current crisis, when authorities became concerned that short-sellers were accelerating the stock-market swoon, the Securities and Exchange Commission issued a legal order prohibiting short-selling in the shares of roughly 800 companies.
In 1907, financial policies were less formal. Morgan simply stated that short-sellers, who bet that a company’s share price would drop, “shall be properly attended to,” said John Steele Gordon, a business historian and author.
His words were to be taken as an implied threat, and a reminder that he was watching. “Nobody wanted to find out what that might mean,” Mr. Gordon explained. “In Morgan’s day, the world was so much smaller, and Morgan was so powerful.”
The estimated $44 billion in cash that Mr. Buffett’s company, Berkshire Hathaway, has on hand is a modest sum compared with the vast size of today’s financial markets. So he can make selective investments but not turn things single-handedly.
At a time when government looms so much larger in the economy than it did a century ago, Mr. Buffett, unlike Morgan, is not directly involved in the current rescue. Yet Mr. Buffett has said that the government has asked for his advice, and he knows and admires the architect of the rescue package, Treasury Secretary Henry M. Paulson Jr.
Mr. Buffett, according to Ms. Schroeder, has over the years become more comfortable and more committed to speaking out on public issues. “It’s not lost on him that people trust him more than they trust politicians,” she said.
Mr. Buffett still speaks to the press only occasionally, and he declined to be interviewed for this article. But after the House of Representatives rejected the rescue plan last Monday, Mr. Buffett got a call from Charlie Rose, the television interviewer, who has known Mr. Buffett for years. He urged Mr. Buffett to appear on his PBS interview show as soon as possible.
“I told him, ‘You have to do this,’ ” Mr. Rose recalled in an interview on Saturday. “ ‘No one has your credibility, and people want to hear what you have to say.’ ”
Mr. Buffett agreed to do it, and Mr. Rose flew to San Diego, where Mr. Buffett would be on Wednesday. The hourlong interview on Wednesday night was vintage Warren Buffett: calm, plain-spoken and wry.
He called the current crisis an economic Pearl Harbor, requiring immediate action. Its biggest single cause, he explained, was the real estate bubble. “Three hundred million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently,” he said. “Lending was done based on it, and everybody did a lot of foolish things.”
As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today’s troubles — once so profitable, but now toxic — were “financial weapons of mass destruction.” These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: “Beware of geeks bearing formulas.”
To help pay for the rescue, the government should raise taxes on the wealthy, Mr. Buffett suggested. “I’m paying the lowest tax rate that I’ve ever paid in my life,” he said. “Now, that’s crazy.”
On Friday, after public sentiment shifted, the House passed the financial rescue package. But the markets are still weak, and it remains to be seen whether Mr. Buffett’s recent investments will prove to be wise ones.
“It’s a high-risk moment, and I think he may have ventured into the waters prematurely,” said Mr. Chernow, the historian. “But Warren Buffett is worth many billions of dollars, and I am assuredly not.”
new_york_times:http://www.nytimes.com/2008/10/06/business/06buffett.html
By STEVE LOHR
Published: October 5, 2008
In the midst of a financial crisis, a towering figure of American business steps forward with his reputation and financial resources for public good and personal gain.
Their times and personalities are vastly different, of course. But J. Pierpont Morgan’s role in the Panic of 1907 has its echo in Warren E. Buffett’s actions during the current financial troubles.
“What Buffett is doing is similar in ways to what Morgan did in 1907,” said Richard Sylla, an economist and financial historian at the Stern School of Business at New York University. “It’s what you might call profitable patriotism.”
Comparing the two men and their moves in periods of market turmoil, just more than a century apart, reveals how much some things have changed over the years and how other things have not, according to business historians and finance experts.
Morgan was 70 during the financial crisis of 1907, in the twilight of his career. Mr. Buffett is 78. Like Morgan so long ago, Mr. Buffett now finds himself “at the center of things; he draws headlines and he inspires confidence,” said Robert F. Bruner, dean of the Darden School of Business at the University of Virginia, and a co-author with Sean D. Carr of “The Panic of 1907: Lessons From the Market’s Perfect Storm” (Wiley, 2007).
In the last two weeks alone, Mr. Buffett has exercised his influence mainly by investing in embattled blue-chip companies, committing a total of $8 billion to Goldman Sachs and General Electric. He drove hard bargains and invested on favorable terms.
Mr. Buffett has been fielding many phone calls recently because of his cash, his reputation and his ability to act quickly. The G.E. investment, for example, was put together in a matter of hours, after G.E. reached out to Mr. Buffett through his longtime banker at Goldman Sachs, Byron D. Trott.
“In the last few weeks, everyone who has been in trouble or thought they were in trouble has called him,” said Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life,” a biography released last week by Bantam. Ms. Schroeder, a former Wall Street analyst, is the first Buffett biographer to receive his cooperation, and she said she talked to him regularly.
The companies benefit from the credibility dividend that comes with the Buffett endorsement. Last Thursday, the day after he announced his investment in G.E., the company raised more than $12 billion in a public sale of shares.
Mr. Buffett is also the largest shareholder in Wells Fargo, which last Friday swept in with a $15 billion bid for another banking company, Wachovia, offering seven times what Citigroup did at the start of the week.
Mr. Buffett is the world’s richest person, topping this year’s ranking of billionaires by Forbes magazine with $62 billion. Mr. Buffett has pledged to give most of that fortune to charity upon his death.
Yet even more than money, Mr. Buffett brings the reputational capital that comes from being a peerless long-term investor, revered for his acumen and sound judgment.
“So there is immense signaling power to Buffett’s moves, showing others that now may be a good time to invest,” Mr. Bruner said.
Morgan wielded his power over the financial markets more directly than Mr. Buffett, though his personal wealth lagged the early 20th century industrial titans John D. Rockefeller and Andrew Carnegie.
In 1907, the United States had no central bank. The financial crisis began that year because trust companies handling wills and estates — firms long synonymous with safe investment — exploited legal loopholes and became wild speculators in the stock market. When those investments soured, the collapse of the trusts threatened the financial system.
Morgan stepped in and functioned as America’s central bank. The United States Treasury handed him $25 million (more than $550 million today) with the blessing of President Theodore Roosevelt — who was not a natural Morgan ally, given his aversion for big business and its leaders, memorably deriding them as “malefactors of great wealth.”
But those were dire economic times. Morgan gathered his fellow financiers at his Manhattan mansion and hammered out a rescue plan. After a few rocky weeks, the panic subsided.
“In 1907, Morgan was not only committing some of his own money but also organizing the entire financial community to join in the rescue,” said Ron Chernow, a business historian and the author of “The House of Morgan” (Atlantic Monthly Press, 1990).
Indeed, Mr. Chernow said, one motivation for creating the Federal Reserve in 1913 was that Morgan would not be around forever. Morgan died that same year.
Morgan also used the power of his personality and public statements to try to sway market behavior and psychology. In the current crisis, when authorities became concerned that short-sellers were accelerating the stock-market swoon, the Securities and Exchange Commission issued a legal order prohibiting short-selling in the shares of roughly 800 companies.
In 1907, financial policies were less formal. Morgan simply stated that short-sellers, who bet that a company’s share price would drop, “shall be properly attended to,” said John Steele Gordon, a business historian and author.
His words were to be taken as an implied threat, and a reminder that he was watching. “Nobody wanted to find out what that might mean,” Mr. Gordon explained. “In Morgan’s day, the world was so much smaller, and Morgan was so powerful.”
The estimated $44 billion in cash that Mr. Buffett’s company, Berkshire Hathaway, has on hand is a modest sum compared with the vast size of today’s financial markets. So he can make selective investments but not turn things single-handedly.
At a time when government looms so much larger in the economy than it did a century ago, Mr. Buffett, unlike Morgan, is not directly involved in the current rescue. Yet Mr. Buffett has said that the government has asked for his advice, and he knows and admires the architect of the rescue package, Treasury Secretary Henry M. Paulson Jr.
Mr. Buffett, according to Ms. Schroeder, has over the years become more comfortable and more committed to speaking out on public issues. “It’s not lost on him that people trust him more than they trust politicians,” she said.
Mr. Buffett still speaks to the press only occasionally, and he declined to be interviewed for this article. But after the House of Representatives rejected the rescue plan last Monday, Mr. Buffett got a call from Charlie Rose, the television interviewer, who has known Mr. Buffett for years. He urged Mr. Buffett to appear on his PBS interview show as soon as possible.
“I told him, ‘You have to do this,’ ” Mr. Rose recalled in an interview on Saturday. “ ‘No one has your credibility, and people want to hear what you have to say.’ ”
Mr. Buffett agreed to do it, and Mr. Rose flew to San Diego, where Mr. Buffett would be on Wednesday. The hourlong interview on Wednesday night was vintage Warren Buffett: calm, plain-spoken and wry.
He called the current crisis an economic Pearl Harbor, requiring immediate action. Its biggest single cause, he explained, was the real estate bubble. “Three hundred million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently,” he said. “Lending was done based on it, and everybody did a lot of foolish things.”
As far back as 2003, Mr. Buffett had warned that the complex securities at the center of today’s troubles — once so profitable, but now toxic — were “financial weapons of mass destruction.” These securities were engineered by the math quants on Wall Street, and in the interview Mr. Buffett expressed his disdain: “Beware of geeks bearing formulas.”
To help pay for the rescue, the government should raise taxes on the wealthy, Mr. Buffett suggested. “I’m paying the lowest tax rate that I’ve ever paid in my life,” he said. “Now, that’s crazy.”
On Friday, after public sentiment shifted, the House passed the financial rescue package. But the markets are still weak, and it remains to be seen whether Mr. Buffett’s recent investments will prove to be wise ones.
“It’s a high-risk moment, and I think he may have ventured into the waters prematurely,” said Mr. Chernow, the historian. “But Warren Buffett is worth many billions of dollars, and I am assuredly not.”
Friday, May 2, 2008
Saturday, March 1, 2008
Warren's Annual Report
The New York Times story on it is:
http://www.nytimes.com/2008/03/01/business/01berkshire.html
Or simply click on the Title above.
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