The Snowball, the first authorized biography of Warren Buffett, has been one of the most eagerly anticipated business books of the year. Published on Monday, the book is particularly timely because of Buffett's role in the credit crisis now roiling Wall Street.
A team of Portfolio.com writers, continuing today with Portfolio.com managing editor Daniel Colarusso, are reviewing the book in sections this week, and will be commenting on each other's reviews (the first part is available here). Readers are invited to add their thoughts in the Comments section.
Part Three of The Snowball: Warren Buffett and the Business of Life takes readers from the early 1950s and his work with Ben Graham and his marriage to Susie through the late 1960s, when he moves to dissolve his own investing partnership. Along the way, his revered father Howard died, he and Susie had three kids of their own, and his wealth grew to $9 million.
Driven by his monastic dedication to the market and amassing wealth, he bought a battered textile maker (Berkshire Hathaway), a troubled retailer, and even dabbled in publishing.
Here are some key passages from the section and our translation and analysis.
On Buffett’s father’s support of William Howard Taft in 1952:
[Howard Buffett] broke with the party by refusing to support Eisenhower. This was an act of political suicide…He was left standing on principle—alone. Warren recognized that his father had “painted himself into a corner.” Now Howard’s struggles branded three principles even deeper into his son: that allies are essential; that commitment are so sacred by nature they should be rare; and that grandstanding rarely gets anything done.”
Uh-oh, sounds like the stage is set for revenge. Will young Warren go to New York, make his fortune, and return to Omaha to get even? Well, no. He does go to New York. He does make his fortune. But he’s too busy counting his money to exact revenge on anyone.
On Susie:
“I needed her like crazy. I was happy in my work but I wasn’t happy with myself. She literally saved my life. She resurrected me. She put me together. It was the same kind of unconditional love you would get from a parent.”
Yeesh. It's always about our mothers, isn't it? Even for Buffett. And we thought he was different.
On going to work for Ben Graham:
Warren was so excited about being hired that he arrived in New York on August 1, 1954, and showed up at his new job at Graham-Newman on August 2, a month before his official starting date. Okay, lemme get this straight. He needed Susie “like crazy” but skipped town a month early to pore over S&P stock guides?
Read the full article
Tuesday, September 30, 2008
Buffett Buys Stake in Chinese Battery Manufacturer
The investor Warren E. Buffett announced on Monday that he had agreed to buy a 9.89 percent stake in a Chinese battery manufacturer that plans to sell electric cars in the United States by 2010.
The MidAmerican Energy Holdings Company, will pay 1.8 billion Hong Kong dollars — about $230 million — for the stake in the battery maker, the BYD Company. Mr. Buffett’s Berkshire Hathaway owns 87.4 percent of MidAmerican.
Based in Shenzhen, a mainland Chinese city adjacent to Hong Kong, BYD is one of the world’s largest makers of rechargeable batteries for cellphones and other uses. The company also has a fast-growing auto-making unit that accounts for nearly a third of its revenue and makes fuel-efficient compact and subcompact cars for the Chinese market.
The president of BYD, Wang Chuanfu, said that the alliance with Mr. Buffett was not just about raising capital for the manufacturer, which relies heavily on short-term debt.
“If BYD were to enter the North American market, Mr. Buffett’s investment would enhance the BYD brand name,” Mr. Wang said at a news conference in Hong Kong late Monday.
He added that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire’s money to accelerate research.
David Sokol, the chairman of MidAmerican, said at the news conference with Mr. Wang that Berkshire Hathaway wanted to address climate change and considered electric cars as a way to do so. “This is a technology that can really be a game changer if we’re serious about reducing” emissions of carbon dioxide, the main gas associated with manmade global warming, Mr. Sokol said.
Read the full article
The MidAmerican Energy Holdings Company, will pay 1.8 billion Hong Kong dollars — about $230 million — for the stake in the battery maker, the BYD Company. Mr. Buffett’s Berkshire Hathaway owns 87.4 percent of MidAmerican.
Based in Shenzhen, a mainland Chinese city adjacent to Hong Kong, BYD is one of the world’s largest makers of rechargeable batteries for cellphones and other uses. The company also has a fast-growing auto-making unit that accounts for nearly a third of its revenue and makes fuel-efficient compact and subcompact cars for the Chinese market.
The president of BYD, Wang Chuanfu, said that the alliance with Mr. Buffett was not just about raising capital for the manufacturer, which relies heavily on short-term debt.
“If BYD were to enter the North American market, Mr. Buffett’s investment would enhance the BYD brand name,” Mr. Wang said at a news conference in Hong Kong late Monday.
He added that BYD would sell cars in the United States and might even move up its plans for entering the market in 2010, by using Berkshire’s money to accelerate research.
David Sokol, the chairman of MidAmerican, said at the news conference with Mr. Wang that Berkshire Hathaway wanted to address climate change and considered electric cars as a way to do so. “This is a technology that can really be a game changer if we’re serious about reducing” emissions of carbon dioxide, the main gas associated with manmade global warming, Mr. Sokol said.
Read the full article
Monday, September 29, 2008
Don’t follow Market’s mood, explore it
Today, after the $700 billion rescue plan was voted down, the market got hammered. On an investing discussion board, I stated “If you have cash, be prepared. You could find some great opportunities in this chaos.” Immediately, I got a response: “Why we still have this kind of crazy people who are not afraid of being killed?”
When market goes south, many people go with it and get depressed. But investing is about buy low and sell high. After market goes down, it’s at least a better deal than yesterday if you already want to buy. We understand this when shopping for grocery. But when come to investing, most people forget this basic idea. People tend to follow the market’s emotion. When market goes up, people are happy and want to buy more stocks. But after seeing the market goes down, people get pessimistic and depressed. Instead of buying stocks at a cheaper price, they want sell. This accelerated market’s decline and created an even better deal for those investors who have the right temperament. These investors have the discipline to stick to their belief. They followed some great companies and have an idea what those values are. Then they patiently wait for the right opportunities. In the crisis like what we have today, they know some of the prices was brought down way below where the value is because of people’s pessimism. They then acted promptly and bought those stocks at a bargain price. After that, their job is to patiently wait for the market value to come back close to where the real value is. In the long run, price will always follow value. Like Benjamin Graham said that in the short run, the market is a voting machine; but in the long run, the market is a weighing machine.
Just a week ago, in an interview on CNBC after buying a stake in Goldman Sachs, Buffet said: “And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.”
So learn from masters, don’t follow market’s mood, explore it.
When market goes south, many people go with it and get depressed. But investing is about buy low and sell high. After market goes down, it’s at least a better deal than yesterday if you already want to buy. We understand this when shopping for grocery. But when come to investing, most people forget this basic idea. People tend to follow the market’s emotion. When market goes up, people are happy and want to buy more stocks. But after seeing the market goes down, people get pessimistic and depressed. Instead of buying stocks at a cheaper price, they want sell. This accelerated market’s decline and created an even better deal for those investors who have the right temperament. These investors have the discipline to stick to their belief. They followed some great companies and have an idea what those values are. Then they patiently wait for the right opportunities. In the crisis like what we have today, they know some of the prices was brought down way below where the value is because of people’s pessimism. They then acted promptly and bought those stocks at a bargain price. After that, their job is to patiently wait for the market value to come back close to where the real value is. In the long run, price will always follow value. Like Benjamin Graham said that in the short run, the market is a voting machine; but in the long run, the market is a weighing machine.
Just a week ago, in an interview on CNBC after buying a stake in Goldman Sachs, Buffet said: “And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well.”
So learn from masters, don’t follow market’s mood, explore it.
Legg's Miller takes new tack on weak performance
Legg Mason Inc.'s star stock picker Bill Miller said yesterday that he is making adjustments in managing his well-known Value Trust mutual fund in light of its weak performance and millions in lost assets.
Miller said he would spread out his concentrated portfolio to include broader allocations across sectors. He may buy mega-cap stocks that are trading at depressed prices, that generate cash and are at the top of their industries.
The moves appear to be deviations for Miller, whose Value Trust owns fewer stocks than most other funds. But Miller characterized the moves as tactical adjustments instead of a major change in his long-term philosophy amid unprecedented financial turmoil. And he insisted that the fund, which has been a big piece of Legg Mason's marketing prowess in recent years, will turn around.
"I'm very disappointed in our results relative to history and to our expectations and how we would have navigated this particular situation," Miller said during a brief interview yesterday at the start of Legg Mason's Thought Leader Forum for investors at Baltimore's Renaissance Harborplace Hotel. "We're responding to that by analyzing the cause and sources just as we did in the late '80s and '90s.
"We're trying to make sure we're always trying to be adaptable and flexible within the context of our core philosophy when events show us that we've been wrong," Miller said. He noted the recent financial crisis was unlike any previous one because it was global and systemic in nature.
Known as a contrarian investor, Miller makes big bets on stocks that have fallen out of favor in the market.
His flagship Value Trust had the distinction of beating the Standard & Poor's 500 index for 15 straight years before the streak ended in 2006. Since then, the fund has struggled with poor performance. The fund's assets have declined to $9.7 billion, from $20.5 billion more than a year ago.
Read the full article
Ariel Fund's Sauer sees value in asset managers, retail
Shares of asset managers, and consumer, retail and some media companies offer good value opportunities in a volatile and beaten down market, a fund manager said.
Matthew Sauer, portfolio manager of the mid-cap focused Ariel Appreciation Fund, which has about $1.6 billion in assets, likes companies such as Janus Capital Group (nyse: JNS - news - people ) and Clorox as he feels that they are trading well below their fair value.
'We can't understate the sea change that's happened in financial markets over the last few weeks. It will have implications for many years to come but it has given us a chance to look around,' Sauer told Reuters from Chicago.
Within financials, the fund manager is particularly enthusiastic about asset managers.
The fund recently added to its holdings in asset management firm Janus Capital Group, and Sauer believes the stock offers an upside potential of as much as 40 percent from current levels before it is fairly valued.
Janus Capital, now Ariel Appreciation's second-largest holding, was trading at $22.28 in afternoon trade on the New York Stock Exchange.
Sauer also likes T Rowe Price as he believes it can take market share, has a strong franchise and also derives stability from its exposure to retirement funds in the United States.
'I don't think there has been any headline in the last six months that would change that for me,' Sauer said.
Read the full article
Matthew Sauer, portfolio manager of the mid-cap focused Ariel Appreciation Fund, which has about $1.6 billion in assets, likes companies such as Janus Capital Group (nyse: JNS - news - people ) and Clorox as he feels that they are trading well below their fair value.
'We can't understate the sea change that's happened in financial markets over the last few weeks. It will have implications for many years to come but it has given us a chance to look around,' Sauer told Reuters from Chicago.
Within financials, the fund manager is particularly enthusiastic about asset managers.
The fund recently added to its holdings in asset management firm Janus Capital Group, and Sauer believes the stock offers an upside potential of as much as 40 percent from current levels before it is fairly valued.
Janus Capital, now Ariel Appreciation's second-largest holding, was trading at $22.28 in afternoon trade on the New York Stock Exchange.
Sauer also likes T Rowe Price as he believes it can take market share, has a strong franchise and also derives stability from its exposure to retirement funds in the United States.
'I don't think there has been any headline in the last six months that would change that for me,' Sauer said.
Read the full article
Sunday, September 28, 2008
Warren Buffett lifts the lid on his secrets
The world’s richest man has revealed all to his biographer.
Warren Buffett always had spectacular timing. As Wall Street burns, the billionaire investor is the hero of the hour after predicting the financial meltdown and riding to the rescue — $5 billion (£2.7 billion) in hand — of Goldman Sachs.
Tomorrow marks the release of The Snowball, the first and only, Buffett says, biography to be written with his co-operation. The book’s author is Alice Schroeder, a former analyst who spent “literally thousands” of hours with Buffett and his family.
“Invaluable” hardly describes Schroeder’s access to the world’s richest man when you consider that lunch with Buffett recently fetched $2.1m in a charity auction.
Such is Buffett’s reputation that last week, when he snapped up his stake in Goldman, the bank’s shares rose $8 as investors who had wondered if it would survive the credit crunch reacted positively.
Schroeder said: “Around the time Bear Stearns was being taken over, he talked about the domino effect to me. He said to me first Bear, then Lehman, then Merrill. He saw this coming and he talked about a crisis of a magnitude that we had not seen before.”
Where others saw chaos, Buffett saw opportunity. It has been a busy two weeks for him. The week before, one of his firms, Mid American Energy, made a $4.7 billion offer for Constellation, a rival pushed to the brink of bankruptcy by the credit crisis.
Buffett likes big brand names for his Berkshire Hathaway investment vehicle. And he likes to pay low prices for them.
The purchase of the Goldman stake was classic Buffett, waiting for a top-rated firm to fall to rock-bottom prices. It seems to be a fall he had been predicting for some time.
Read the full article
Warren Buffett always had spectacular timing. As Wall Street burns, the billionaire investor is the hero of the hour after predicting the financial meltdown and riding to the rescue — $5 billion (£2.7 billion) in hand — of Goldman Sachs.
Tomorrow marks the release of The Snowball, the first and only, Buffett says, biography to be written with his co-operation. The book’s author is Alice Schroeder, a former analyst who spent “literally thousands” of hours with Buffett and his family.
“Invaluable” hardly describes Schroeder’s access to the world’s richest man when you consider that lunch with Buffett recently fetched $2.1m in a charity auction.
Such is Buffett’s reputation that last week, when he snapped up his stake in Goldman, the bank’s shares rose $8 as investors who had wondered if it would survive the credit crunch reacted positively.
Schroeder said: “Around the time Bear Stearns was being taken over, he talked about the domino effect to me. He said to me first Bear, then Lehman, then Merrill. He saw this coming and he talked about a crisis of a magnitude that we had not seen before.”
Where others saw chaos, Buffett saw opportunity. It has been a busy two weeks for him. The week before, one of his firms, Mid American Energy, made a $4.7 billion offer for Constellation, a rival pushed to the brink of bankruptcy by the credit crisis.
Buffett likes big brand names for his Berkshire Hathaway investment vehicle. And he likes to pay low prices for them.
The purchase of the Goldman stake was classic Buffett, waiting for a top-rated firm to fall to rock-bottom prices. It seems to be a fall he had been predicting for some time.
Read the full article
Why Warren Buffett is Betting on Banks Now
Bank stocks could be the buy of a lifetime right now. The bailout is moving forward, the markets have stabilized, and Warren Buffett has put up a $5 billion bet on Goldman Sachs (NYSE:GS) this week.
Is it time to follow Buffett’s lead and go “all in” on banks now?
The answer is a simple no.
Buffett got a very sweet deal from Goldman that has reduced his risk, gave him a high degree of income, and didn’t eliminate a single cent of the potential profits from the deal. And there’s a little known way we get all that in our investments too. Let me explain.
There are a lot of reasons to like banks right now. Share values have been pummeled over the last year. If the bailout goes through, they’re about to unload their mistakes onto everyone else. The ones that are left still generate high fees, margins, and profits for the services they provide. And the ones that manage to survive will be some of the biggest winners when the U.S. economy recovers.
Banks are an extreme value play that undoubtedly caught Buffett’s eye. However, even he needed some enticing odds to make a bet this big.
As individual investors, we can’t simply follow his lead here and buy Goldman Sachs. Buffett was afforded a few special advantages that aren’t usually available to the rest of us. But as we’ll see in a moment, occasionally we can get these advantages too.
You see, Warren Buffett didn’t make a simple $5 billion investment into common shares of Goldman Sachs. Anyone can do that with a few mouse clicks or a quick phone call to his or her broker. He got a lot more for his $5 billion.
Berkshire Hathaway acquired special perpetual preferred shares of Goldman Sachs. These aren’t the shares you can buy on the NYSE. The preferred shares Goldman issued to Berkshire have all kinds of special attributes usually reserved for high-net worth individuals.
Read the full article
Is it time to follow Buffett’s lead and go “all in” on banks now?
The answer is a simple no.
Buffett got a very sweet deal from Goldman that has reduced his risk, gave him a high degree of income, and didn’t eliminate a single cent of the potential profits from the deal. And there’s a little known way we get all that in our investments too. Let me explain.
There are a lot of reasons to like banks right now. Share values have been pummeled over the last year. If the bailout goes through, they’re about to unload their mistakes onto everyone else. The ones that are left still generate high fees, margins, and profits for the services they provide. And the ones that manage to survive will be some of the biggest winners when the U.S. economy recovers.
Banks are an extreme value play that undoubtedly caught Buffett’s eye. However, even he needed some enticing odds to make a bet this big.
As individual investors, we can’t simply follow his lead here and buy Goldman Sachs. Buffett was afforded a few special advantages that aren’t usually available to the rest of us. But as we’ll see in a moment, occasionally we can get these advantages too.
You see, Warren Buffett didn’t make a simple $5 billion investment into common shares of Goldman Sachs. Anyone can do that with a few mouse clicks or a quick phone call to his or her broker. He got a lot more for his $5 billion.
Berkshire Hathaway acquired special perpetual preferred shares of Goldman Sachs. These aren’t the shares you can buy on the NYSE. The preferred shares Goldman issued to Berkshire have all kinds of special attributes usually reserved for high-net worth individuals.
Read the full article
Saturday, September 27, 2008
Friday, September 26, 2008
Eddie Lampert: The best advice I ever got
Almost every weekend when I was 7, 8, 9, 10 years old, my father and I would toss a football in the yard or play basketball in the driveway. When we played football, he'd say, "Go out ten steps. Turn to your right." The ball would reach me just before I turned, and it would hit me right in the chest. Why would my dad do this? He told me, "If I waited for you to turn, you and the defensive player would have an equal chance to get the ball. Your opportunity is gone."
This idea of anticipation is key to investing and to business generally. You can't wait for an opportunity to become obvious. You have to think, "Here's what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?" The plays my father designed for me helped me learn to think ahead. Lots of days I asked him, "Why can't we just invite kids over and play a game?" In order to do something well, he explained, you have to keep practicing and preparing.
Thursday, September 25, 2008
Buffett: A Better Negotiator for Taxpayers?
Maybe the American taxpayers should be asking Warren Buffett to be negotiating on their behalf, The New York Times’s David Leonhardt muses.
Treasury Secretary Henry Paulson has spent a good part of the last two days on Capitol Hill arguing that the government should not demand a stake in any Wall Street firms it bails out. Demanding such a stake, Mr. Paulson says, could scare away many of those firms from participating in the bailout, leaving the credit markets as hobbled as they are now.
And then Mr. Buffett swooped in on Tuesday evening and announced that his company, Berkshire Hathaway, was investing $5 billion in Goldman Sachs, money that would help the firm — which made far fewer bad investments than most of Wall Street — shore up its balance sheet. What will he receive in exchange for his investment? Something like a 7 percent stake in the firm.
Mr. Paulson, of course, has a different objective than Mr. Buffett. The Treasury secretary is trying to resuscitate the country’s financial system and keep the economy from falling into a deep recession. If he drives too hard a bargain, he won’t solve the problem. Mr. Buffett is merely trying to make some money.
Read the full article
Treasury Secretary Henry Paulson has spent a good part of the last two days on Capitol Hill arguing that the government should not demand a stake in any Wall Street firms it bails out. Demanding such a stake, Mr. Paulson says, could scare away many of those firms from participating in the bailout, leaving the credit markets as hobbled as they are now.
And then Mr. Buffett swooped in on Tuesday evening and announced that his company, Berkshire Hathaway, was investing $5 billion in Goldman Sachs, money that would help the firm — which made far fewer bad investments than most of Wall Street — shore up its balance sheet. What will he receive in exchange for his investment? Something like a 7 percent stake in the firm.
Mr. Paulson, of course, has a different objective than Mr. Buffett. The Treasury secretary is trying to resuscitate the country’s financial system and keep the economy from falling into a deep recession. If he drives too hard a bargain, he won’t solve the problem. Mr. Buffett is merely trying to make some money.
Read the full article
Wednesday, September 24, 2008
Important quote from Buffett's interview today with CNBC
CARL (reporter): A lot of people who are watching us Warren, and even people who have just started watching us over the past week or two, look at the stock market every day and are confused. They want to use it as a metric for how we're doing, or at least the progress we're making on big issues. I'm guessing you don't think it's reflective of anything that's based in reality right now?
BUFFETT: Well, the stock market in the short -- my old boss Ben Graham said that in the short-run the stock market is a voting machine, in the long-run it's a weighing machine. As a voting machine, it responds to people's emotions. There's no literacy test for voting. You vote according to how much money you have, not according to how smart you (are.) So the stock market does some very silly things in the short-run. Over the long-run, it behaves quite rationally. And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well. But they shouldn't own it on leverage. That's what people have learned in this period, that you've got to be able to play out your hand and it's a big mistake to let somebody else be in a position where they can sell you out.
BUFFETT: Well, the stock market in the short -- my old boss Ben Graham said that in the short-run the stock market is a voting machine, in the long-run it's a weighing machine. As a voting machine, it responds to people's emotions. There's no literacy test for voting. You vote according to how much money you have, not according to how smart you (are.) So the stock market does some very silly things in the short-run. Over the long-run, it behaves quite rationally. And, you know, five years from now, ten years from now, we'll look back on this period and we'll see that you could have made some extraordinary buys. That doesn't mean it won't get more extraordinary a week or a month from now. I have no idea what the stock market is going to do next month or six months from now. I do know that the American economy, over a period of time, will do very well, and people who own a piece of it will do well. But they shouldn't own it on leverage. That's what people have learned in this period, that you've got to be able to play out your hand and it's a big mistake to let somebody else be in a position where they can sell you out.
CNBC INTERVIEW TRANSCRIPT & VIDEO: Warren Buffett Explains His $5B Goldman Investment
Warren Buffett was interviewed live by telephone on CNBC's Squawk Box this morning about his surprise investment of at least $5 billion in Goldman Sachs.
BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?
WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.
BECKY: Does the backdrop of the Federal government potentially getting involved with a massive bailout plan for Wall Street, does that have anything to do with this deal?
BUFFETT: Well, I would say this. If I didn't think the government was going to act, I would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.
BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?
BUFFETT: Well, there's just no telling what would happen. Last week we were at the brink of something that would have made anything that's happened in financial history look pale. We were very, very close to a system that was totally dysfunctional and would have not only gummed up the financial markets, but gummed up the economy in a way that would take us years and years to repair. We've got enough problems to deal with anyway. I'm not saying the Paulson plan eliminates those problems. But it was absolutely, and is absolutely necessary, in my view, to really avoid going over the precipice.
Read the full transcript and watch the video
BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?
WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.
BECKY: Does the backdrop of the Federal government potentially getting involved with a massive bailout plan for Wall Street, does that have anything to do with this deal?
BUFFETT: Well, I would say this. If I didn't think the government was going to act, I would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.
BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?
BUFFETT: Well, there's just no telling what would happen. Last week we were at the brink of something that would have made anything that's happened in financial history look pale. We were very, very close to a system that was totally dysfunctional and would have not only gummed up the financial markets, but gummed up the economy in a way that would take us years and years to repair. We've got enough problems to deal with anyway. I'm not saying the Paulson plan eliminates those problems. But it was absolutely, and is absolutely necessary, in my view, to really avoid going over the precipice.
Read the full transcript and watch the video
Tuesday, September 23, 2008
It's time to be greedy
As I said before, you should not follow Mr. Market's mood, but explore it. As the market collapsed recently due to credit market crisis, many people got scared and pull market out of the market. They don't even dare to look at the market which they loved and followed everyday just a year ago. But this is the exact time that you should be greedy and look out for opportunities. And that's what Warren Buffet is doing. The news just came out today that Berkshire Hathaway paid $5 billion for a stake in Goldman Sachs. Here are some excerpts from the AP news:
Warren Buffett's Berkshire Hathaway Inc. is investing at least $5 billion in Goldman Sachs, a huge vote of confidence for one of the survivors of the credit crisis that felled two of its investment banking peers.
In addition to buying $5 billion in preferred stock, Berkshire also got warrants to buy another $5 billion in Goldman's common stock. Goldman also said late Tuesday it would raise another $2.5 billion in its own public stock offering.
"Goldman Sachs is an exceptional institution," the chairman and CEO of Berkshire Hathaway said in a news release. "It has an unrivaled global franchise, a proven and deep management team and the intellectual and financial capital to continue its track record of outperformance."
So hopefully we can learn from Warren Buffet: be greedy when others are fearful.
Scott Black: Time To Grab Some Value
Some traders think this might be a good day to spend on the sidelines. Not Scott Black. He says investors should get to work right away, snapping up value stocks.
"Most of the systemic risk has been taken care of by the Federal Reserve...but I would stick to what you do normally, which is to buy high-return-on-equity stocks," the president of Delphi Management told CNBC. "At this point, I don't think the underpinnings of the market are such that we're going to see major downdraft from here."
Although he believes it's safe to go into the water again, he sees some rip currents to beware: "[Investors] probably shouldn't be buying financial-service stocks," he said.
Recommendations:
So what looks good to him?
"You can go to things like oil-service companies, that have good contracts into next year," he said. "You can buy companies like Noble [NE 48.16 0.41 (+0.86%) ] and Ensco [ESV 61.54 -0.22 (-0.36%) ], at 6 P/Es, ROEs over 25 percent, and virtually debt-free balance sheets.
"You can buy an Oracle [ORCL 20.21 0.46 (+2.33%) ], which has demonstrated sustainable earning power, more cash than debt...these aren't speculations; these are good businesses, and you should be buying good businesses at cheap prices."
Watch the video
"Most of the systemic risk has been taken care of by the Federal Reserve...but I would stick to what you do normally, which is to buy high-return-on-equity stocks," the president of Delphi Management told CNBC. "At this point, I don't think the underpinnings of the market are such that we're going to see major downdraft from here."
Although he believes it's safe to go into the water again, he sees some rip currents to beware: "[Investors] probably shouldn't be buying financial-service stocks," he said.
Recommendations:
So what looks good to him?
"You can go to things like oil-service companies, that have good contracts into next year," he said. "You can buy companies like Noble [NE 48.16 0.41 (+0.86%) ] and Ensco [ESV 61.54 -0.22 (-0.36%) ], at 6 P/Es, ROEs over 25 percent, and virtually debt-free balance sheets.
"You can buy an Oracle [ORCL 20.21 0.46 (+2.33%) ], which has demonstrated sustainable earning power, more cash than debt...these aren't speculations; these are good businesses, and you should be buying good businesses at cheap prices."
Watch the video
Sunday, September 21, 2008
Carl Icahn: Corporate Waste Brings this Nation Closer to the Brink
Few things bother me more than the titanic government debt load this country carries from years of reckless government borrowing and spending. We really have no ability to repay this debt, other than by continually issuing new debt to pay the interest on the old debt.
The Peter G. Peterson Foundation calculates that we as a country have racked up a staggering $53 trillion in government obligations. That’s $455,000 per household and growing at the rate of $2 trillion to $3 trillion a year "on autopilot," the respected think tank says.
Just this week, we added another $85 billion to these obligations with the bailout of insurance giant AIG. Add that to the $200 billion in potential obligations to Fannie Mae and Freddie Mac, the $29 billion to back up Bear Stearns toxic credits, and $300 billion for the Federal Housing Authority and a possible $25 billion to $50 billion in low-interest loans for Detroit’s Big-3 automakers and we’re talking nearly $700 billion on top of this.
The debt and obligations we carry as a nation, combined with our miniscule savings rate and monster trade deficit, is truly frightening.
Read the full article
The Peter G. Peterson Foundation calculates that we as a country have racked up a staggering $53 trillion in government obligations. That’s $455,000 per household and growing at the rate of $2 trillion to $3 trillion a year "on autopilot," the respected think tank says.
Just this week, we added another $85 billion to these obligations with the bailout of insurance giant AIG. Add that to the $200 billion in potential obligations to Fannie Mae and Freddie Mac, the $29 billion to back up Bear Stearns toxic credits, and $300 billion for the Federal Housing Authority and a possible $25 billion to $50 billion in low-interest loans for Detroit’s Big-3 automakers and we’re talking nearly $700 billion on top of this.
The debt and obligations we carry as a nation, combined with our miniscule savings rate and monster trade deficit, is truly frightening.
Read the full article
Saturday, September 20, 2008
Templeton's Mobius sees bargains in turmoil
The financial storm of the last week has smacked valuations down to attractive levels, particularly in Brazil, Thailand and Turkey, said Mark Mobius, executive chairman of Templeton Asset Management.
In response to email questions on Wednesday, Mobius said markets are closer to the end of the financial crisis after a bankruptcy filing by Lehman Brothers (LEH.P: Quote, Profile, Research), massive industry consolidation and the bail-out of American International Group (AIG.N: Quote, Profile, Research).
"The resolution of the uncertainty revolving around Lehman, Merrill Lynch and AIG is positive and could constitute the beginning of the end of the market turmoil that has afflicted financial markets since mid-2007," said Mobius, who helps to oversee $28 billion in emerging market assets.
"We believe the events of this past week have resulted in markets falling to valuations that present an investment opportunity."
He said he continues to find value in Brazil, Thailand and Turkey, where he has been bullish since at least April. He also said bank stocks in emerging markets have not been hit as hard as in developed markets.
Emerging markets have been hard hit in the last two months, particularly after oil prices peaked and then fell nearly $54 a barrel, as investors slashed their exposure to risky markets.
The MSCI emerging markets stocks index .MSCIEF has dropped 27.6 percent since July, underperforming the all-country index .MIWD00000PUS, which has fallen 13.9 percent.
Read the full article
In response to email questions on Wednesday, Mobius said markets are closer to the end of the financial crisis after a bankruptcy filing by Lehman Brothers (LEH.P: Quote, Profile, Research), massive industry consolidation and the bail-out of American International Group (AIG.N: Quote, Profile, Research).
"The resolution of the uncertainty revolving around Lehman, Merrill Lynch and AIG is positive and could constitute the beginning of the end of the market turmoil that has afflicted financial markets since mid-2007," said Mobius, who helps to oversee $28 billion in emerging market assets.
"We believe the events of this past week have resulted in markets falling to valuations that present an investment opportunity."
He said he continues to find value in Brazil, Thailand and Turkey, where he has been bullish since at least April. He also said bank stocks in emerging markets have not been hit as hard as in developed markets.
Emerging markets have been hard hit in the last two months, particularly after oil prices peaked and then fell nearly $54 a barrel, as investors slashed their exposure to risky markets.
The MSCI emerging markets stocks index .MSCIEF has dropped 27.6 percent since July, underperforming the all-country index .MIWD00000PUS, which has fallen 13.9 percent.
Read the full article
How to invest like Warren Buffett
Buffet’s mentors
Warren Buffett studied stock market analysis at Columbia University, in New York, under the wing of Benjamin Graham who was, until the arrival of Buffett, perhaps the greatest thinker on portfolio investment.
Graham was a classic value investor. In other words he was looking to buy companies whose net asset value per share was greater than the share price. Buffett inherited Graham’s fascination for technical analysis and aversion to paying over the odds for any stock.
The influence of Omaha, Nebraska
Buffett has spent virtually all his working life in Omaha, a mid-west town which is dedicated to economic activity with no distractions. This has given him a real ‘feel’ for business and how businesses work. He sees them as living organisms and thinks of a shareholding not as an abstract piece of paper but as a genuine stake in a business. He has been involved in the management of various companies for more than 40 years and in 1965 he took over Berkshire Hathaway, a textile manufacturer in Massachusetts, which he turned into his own investment company. Its performance has proved a moneyspinner for shareholders and turned Buffett into the world’s richest man. Back in 1965 Berkshire Hathaway’s share price stood at under $20. Today it stands at more than $115,000. Buffett's letters to Berkshire Hathaway shareholders have become collectors' pieces.
Understanding businesses
Buffett once famously said you should never invest in a business that you don’t understand. This stance meant that he didn’t invest in dot.com stocks and as a result his performance suffered at the height of the technology bubble. But Buffett had the last laugh when the tech bubble burst and his more sedate investments stood up a lot better in the market crash than the technology-rich portfolios of many of his competitors.
Read the full article
Thursday, September 18, 2008
Is my money market fund safe?
With the market in turmoil, some people are worried that their money market fund maybe in danger. In order to know if the money market fund is really safe, we first need to understand what money market fund is. I find this explanation from Wikipedia:
Money market funds, also known as principal stability funds, seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds in the United States are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt which matures in under 13 months. The portfolio must maintain a Weighted Average Maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government and repurchase agreement securities.
Money market funds seek a stable $1.00 net asset value (NAV). The Community Bankers US Government Fund "broke the buck" in 1994, paying investors $0.96 per share. That fund had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value. Reserve Primary Fund "broke the buck" on September 16, 2008, when its share fell to 97 cents after writing off debt issued by bankrupt Lehman Brothers Holdings Inc.[1]
Eligible money market securities include commercial paper, repurchase agreements, short-term bonds or other money funds. Money market securities must be highly liquid, and have a stable value.
The “broke the buck” situation is rare for the following reasons. First money market fund buy highest quality short term debts required by law. Second, those debts are usually over collateralized. Third, those collateral assets are usually held in custody at a third-party custodian bank. The following is a Q&A regarding Fidelity's taxable money market fund holdings provided by Fidelity.
Q. Are any of your money market funds at risk of breaking the buck?
A. We can state unequivocally that Fidelity's money market funds and accounts continue to provide security and safety for our customers' cash investments. Our funds continue to invest in money market securities of high quality, and our customers continue to have full access to their investments any time they wish. Most importantly, we have been proactive in keeping our money market funds safe and in protecting the $1.00 net asset value (NAV), which has always been our #1 objective in managing these funds.
Q. What exposure do Fidelity's taxable money market funds have to the debt of Lehman Brothers?
A. Our money market funds have no exposure to any Lehman Brothers entity.
Q. Do Fidelity's taxable money market funds have exposure to AIG?
A. Yes, the taxable money market funds have modest exposure to two issuers that are subsidiaries of AIG: ASIF Global Funding and International Lease Finance Corp.
Q. Given the market volatility surrounding AIG, is Fidelity comfortable with these holdings?
A. Yes, Fidelity is confident that these holdings will pay full principal at maturity. ASIF Global Funding is a regulated funding insurance subsidiary supporting SunAmerica and benefits from franchise strength and diversified earnings. International Lease Finance Corp. is a profitable global aircraft finance subsidiary that has enjoyed strong financial
Read the full Q&A from Fidelity
Money market funds, also known as principal stability funds, seek to limit exposure to losses due to credit, market, and liquidity risks. Money market funds in the United States are regulated by the Securities and Exchange Commission's (SEC) Investment Company Act of 1940. Rule 2a-7 of the act restricts investments in money market funds by quality, maturity and diversity. Under this act, a money fund mainly buys the highest rated debt which matures in under 13 months. The portfolio must maintain a Weighted Average Maturity (WAM) of 90 days or less and not invest more than 5% in any one issuer, except for government and repurchase agreement securities.
Money market funds seek a stable $1.00 net asset value (NAV). The Community Bankers US Government Fund "broke the buck" in 1994, paying investors $0.96 per share. That fund had invested a large percentage of its assets into adjustable rate securities. As interest rates increased, these floating rate securities lost value. Reserve Primary Fund "broke the buck" on September 16, 2008, when its share fell to 97 cents after writing off debt issued by bankrupt Lehman Brothers Holdings Inc.[1]
Eligible money market securities include commercial paper, repurchase agreements, short-term bonds or other money funds. Money market securities must be highly liquid, and have a stable value.
The “broke the buck” situation is rare for the following reasons. First money market fund buy highest quality short term debts required by law. Second, those debts are usually over collateralized. Third, those collateral assets are usually held in custody at a third-party custodian bank. The following is a Q&A regarding Fidelity's taxable money market fund holdings provided by Fidelity.
Q. Are any of your money market funds at risk of breaking the buck?
A. We can state unequivocally that Fidelity's money market funds and accounts continue to provide security and safety for our customers' cash investments. Our funds continue to invest in money market securities of high quality, and our customers continue to have full access to their investments any time they wish. Most importantly, we have been proactive in keeping our money market funds safe and in protecting the $1.00 net asset value (NAV), which has always been our #1 objective in managing these funds.
Q. What exposure do Fidelity's taxable money market funds have to the debt of Lehman Brothers?
A. Our money market funds have no exposure to any Lehman Brothers entity.
Q. Do Fidelity's taxable money market funds have exposure to AIG?
A. Yes, the taxable money market funds have modest exposure to two issuers that are subsidiaries of AIG: ASIF Global Funding and International Lease Finance Corp.
Q. Given the market volatility surrounding AIG, is Fidelity comfortable with these holdings?
A. Yes, Fidelity is confident that these holdings will pay full principal at maturity. ASIF Global Funding is a regulated funding insurance subsidiary supporting SunAmerica and benefits from franchise strength and diversified earnings. International Lease Finance Corp. is a profitable global aircraft finance subsidiary that has enjoyed strong financial
Read the full Q&A from Fidelity
Marty Whitman's glass-half-full take on market
'There are great values out there now,' says octogenarian founder of Third Avenue Management
Marty Whitman, the octogenarian dean of deep-value investing, sees great bargains to be snapped up from the current stock market meltdown.
"It's a great time," enthused the 83-year-old founder of New York-based Third Avenue Management LLC before speaking yesterday at a conference organized by AIC Ltd.
"We can't try to pick the bottom, but it seems to me that there are great values out there now, just like in 1974," the firm's co-chief investment officer said in an interview.
The stock market crash of 1973-74, which affected all the major stock markets around the world, lasted 694 days before bottoming out.
"Everything went down every day, and if you bought, you hit a lot of 10-baggers," recalled Mr. Whitman. "I hope that we do it with a lot of what we are doing now."
Mr. Whitman, who buys stocks he considers to be "safe and cheap," still oversees the firm's flagship mutual fund, Third Avenue Value, in the United States.
The former Wall Street analyst with a background in distressed investments didn't start his fund company until 1990 at 65, an age when most people retire. As of Aug. 31, his global fund has posted an average annual return of 14.4 per cent since inception.
His colleague, Ian Lapey, who is in his early 40s and is the designated successor to Mr. Whitman, runs the similarly managed AIC Global Focused Fund sold in Canada.
With the U.S. government bailing out American International Group Inc., and Lehman Brothers Holdings Inc. filing for bankruptcy protection this week, Mr. Whitman described the unfolding events as "the most severe financial crisis" that he has seen.
Read the full article
Marty Whitman, the octogenarian dean of deep-value investing, sees great bargains to be snapped up from the current stock market meltdown.
"It's a great time," enthused the 83-year-old founder of New York-based Third Avenue Management LLC before speaking yesterday at a conference organized by AIC Ltd.
"We can't try to pick the bottom, but it seems to me that there are great values out there now, just like in 1974," the firm's co-chief investment officer said in an interview.
The stock market crash of 1973-74, which affected all the major stock markets around the world, lasted 694 days before bottoming out.
"Everything went down every day, and if you bought, you hit a lot of 10-baggers," recalled Mr. Whitman. "I hope that we do it with a lot of what we are doing now."
Mr. Whitman, who buys stocks he considers to be "safe and cheap," still oversees the firm's flagship mutual fund, Third Avenue Value, in the United States.
The former Wall Street analyst with a background in distressed investments didn't start his fund company until 1990 at 65, an age when most people retire. As of Aug. 31, his global fund has posted an average annual return of 14.4 per cent since inception.
His colleague, Ian Lapey, who is in his early 40s and is the designated successor to Mr. Whitman, runs the similarly managed AIC Global Focused Fund sold in Canada.
With the U.S. government bailing out American International Group Inc., and Lehman Brothers Holdings Inc. filing for bankruptcy protection this week, Mr. Whitman described the unfolding events as "the most severe financial crisis" that he has seen.
Read the full article
Charles Brandes: Value vs. Glamour: A Global Phenomenon
In 1934’s Security Analysis, Benjamin Graham and David Dodd argued that out-of-favor stocks are sometimes underpriced in the marketplace, and that investors cognizant of this phenomenon could capture strong returns. Conversely, the duo theorized, prices for widely popular stocks often are buttressed by high expectations and could be vulnerable if these expectations prove too enthusiastic.1
The philosophy espoused by Graham and Dodd is now widely known as value investing, and the unpopular “value” stocks they advocated often are associated with companies experiencing hard times, operating in mature industries, or facing similarly adverse circumstances. Alternatively, typically fast-growing “glamour” companies frequently function in dynamic industries with a relatively high profile. This stark contrast in attributes leads to a natural question: which stocks have performed better, value or glamour?
While this is not a simple inquiry, we believe historical analysis can shed light on the relative performance of value stocks and glamour stocks – largely because their divergent traits often manifest in their respective valuation metrics. Specifically, value shares typically feature low price-to-book, price-to-earnings, or price-to-cash flow ratios, while glamour stocks generally are characterized by valuation metrics at the opposite end of the spectrum. As a result, these metrics can be used to split a sample of equities into either the value or the glamour camp – and subsequently track each group’s performance over time.
Read the full article
The philosophy espoused by Graham and Dodd is now widely known as value investing, and the unpopular “value” stocks they advocated often are associated with companies experiencing hard times, operating in mature industries, or facing similarly adverse circumstances. Alternatively, typically fast-growing “glamour” companies frequently function in dynamic industries with a relatively high profile. This stark contrast in attributes leads to a natural question: which stocks have performed better, value or glamour?
While this is not a simple inquiry, we believe historical analysis can shed light on the relative performance of value stocks and glamour stocks – largely because their divergent traits often manifest in their respective valuation metrics. Specifically, value shares typically feature low price-to-book, price-to-earnings, or price-to-cash flow ratios, while glamour stocks generally are characterized by valuation metrics at the opposite end of the spectrum. As a result, these metrics can be used to split a sample of equities into either the value or the glamour camp – and subsequently track each group’s performance over time.
Read the full article
Maybe all this misery is just pay back
by Stanley Bing
Tuesday, September 16, 2008
God forgive me for the thoughts I’m having this morning.
I’m just wondering how they feel today, all the analysts and brokers from the financial institutions who are now being punished for the profligacy, stupidity, greed and wishful thinking of their masters. How they feel as they dust off their resumes and try to put the pieces back together in a world flooded with needy drifters just like them.
Do they feel like all my friends in years past who were downsized as a direct result of the kind of advice the Street gave to a variety of senior managers facing the issue of forced, quarter-to-quarter growth?
Do they feel like my pals at our former cable division, which was divested, in an act of completely moronic short-sightedness, when people like them decided that businesses who throw off cash flow but lower earnings per share were not worth keeping?
Do they feel sort of like the folks subsequently laid off from the corporation when, without that cash flow, it could no longer make the payroll it had once been able to support?
Read the full article
Tuesday, September 16, 2008
God forgive me for the thoughts I’m having this morning.
I’m just wondering how they feel today, all the analysts and brokers from the financial institutions who are now being punished for the profligacy, stupidity, greed and wishful thinking of their masters. How they feel as they dust off their resumes and try to put the pieces back together in a world flooded with needy drifters just like them.
Do they feel like all my friends in years past who were downsized as a direct result of the kind of advice the Street gave to a variety of senior managers facing the issue of forced, quarter-to-quarter growth?
Do they feel like my pals at our former cable division, which was divested, in an act of completely moronic short-sightedness, when people like them decided that businesses who throw off cash flow but lower earnings per share were not worth keeping?
Do they feel sort of like the folks subsequently laid off from the corporation when, without that cash flow, it could no longer make the payroll it had once been able to support?
Read the full article
Wednesday, September 17, 2008
Leucadia National - Consistently Ahead of the Curve
Everyone has heard the theory that no investor can expect to consistently beat the market over the long term; the stock market today is simply too efficient. Of course, in most cases this sentiment is correct; it is exceedingly difficult to be on the right side of the market year after year. However, there are exceptions to every rule and one exception to this investment adage is Leucadia National Corp. (LUK). To be fair, LUK does not outpace the market every year, but over the long haul its performance is undeniable. From 1979 through the end of 2007, this diversified holding company has returned a gaudy 26.2% per year versus an annualized 9.8% return on the S&P 500. Yet, there is relatively little buzz about LUK and also fairly little information available about the company—but this is certainly a story that should be told.
The key to Leucadia’s success has to be the talented men that steer the strategic vision of the company: Ian Cumming and Joseph Steinberg. These two gentlemen have successfully navigated the ups and the downs over the last few decades always with a firm grip on macroeconomic trends. For example, as they describe in their annual letter to shareholders, after observing the simultaneous rise of population and standard of living in Asia (China and India in particular), Cumming and Steinberg sensed opportunity. Realizing that infrastructure expansion in these regions would surely be necessary to foster further growth, they invested in copper and steel mining operations. As they surmised, global demand for basic materials ramped up in a big way—with prices following suit—and now their investments are paying off. This is just one demonstration of the fundamentally sound and profitable vision of these two leaders. Their management style is to find and exploit under-appreciated value in the marketplace, and in my opinion it is an approach that is part science and part art.
Read the full article
The key to Leucadia’s success has to be the talented men that steer the strategic vision of the company: Ian Cumming and Joseph Steinberg. These two gentlemen have successfully navigated the ups and the downs over the last few decades always with a firm grip on macroeconomic trends. For example, as they describe in their annual letter to shareholders, after observing the simultaneous rise of population and standard of living in Asia (China and India in particular), Cumming and Steinberg sensed opportunity. Realizing that infrastructure expansion in these regions would surely be necessary to foster further growth, they invested in copper and steel mining operations. As they surmised, global demand for basic materials ramped up in a big way—with prices following suit—and now their investments are paying off. This is just one demonstration of the fundamentally sound and profitable vision of these two leaders. Their management style is to find and exploit under-appreciated value in the marketplace, and in my opinion it is an approach that is part science and part art.
Read the full article
Transcript of the Ruane, Cunniff & Goldfarb Investor Day 2008
May 16, 2008 – St. Regis Hotel, New York City
Bob Goldfarb:
Good morning, and welcome to our Investor Day. We're going to follow the same format that we have in recent years, which means that the day is going to consist strictly of questions and answers, and we'll take questions until 12:30. We have to vacate the room by one o'clock, but we'll be around between 12:30 and one o'clock to meet you and respond to any questions that you might still have for us.
There is one restriction I'm going to ask. If there are any journalists or Internet bloggers in attendance, we ask that this meeting be off the record. We prepare a transcript of the meeting for our clients and shareholders, and we prefer that all of our shareholders and clients receive the transcript at the same time and in full.
Before we begin taking your questions, I'd like to introduce our team. On my far left is Greg Steinmetz. Next to Greg is Jon Brandt, then David Poppe, who is President of our firm and co-manager of Sequoia. Rick Cunniff is on my right. As most of you know, he's our co-founder. To his right is Greg Alexander and to Greg's right is Joe Quinones, who runs the operations side of our firm as well as that of Sequoia.
Finally, I'd like to introduce the rest of our team who are seated in the front of the room on my left and to your right. In alphabetical order, they are Girish Bhakoo, Andy Ewert, John Harris, Jake Hennemuth, Arman Kline, Trevor Magyar, Tom Mialkos, Terence Paré, and Chase Sheridan. I'd also like to introduce Jon Gross who is our Director of Client Services. With that, we're ready for your questions.
Question:
I noticed that you trimmed your stake in Wal-Mart and increased it in Target. I was wondering if you might talk about Target, its position and why you like it so much.
David Poppe:
What I would say is we bought most of the Target before we sold any Wal-Mart. Sequoia still holds Wal-Mart.
Interestingly, I think if you look over the last seven years since 2001, Wal-Mart and Target have almost identical EPS growth rates. I think going forward, both are likely to have pretty good EPS growth rates. Right now, Wal-Mart might be a little bit better positioned in that its business is more oriented to food, commodities and staples.
Read the full transcript
Bob Goldfarb:
Good morning, and welcome to our Investor Day. We're going to follow the same format that we have in recent years, which means that the day is going to consist strictly of questions and answers, and we'll take questions until 12:30. We have to vacate the room by one o'clock, but we'll be around between 12:30 and one o'clock to meet you and respond to any questions that you might still have for us.
There is one restriction I'm going to ask. If there are any journalists or Internet bloggers in attendance, we ask that this meeting be off the record. We prepare a transcript of the meeting for our clients and shareholders, and we prefer that all of our shareholders and clients receive the transcript at the same time and in full.
Before we begin taking your questions, I'd like to introduce our team. On my far left is Greg Steinmetz. Next to Greg is Jon Brandt, then David Poppe, who is President of our firm and co-manager of Sequoia. Rick Cunniff is on my right. As most of you know, he's our co-founder. To his right is Greg Alexander and to Greg's right is Joe Quinones, who runs the operations side of our firm as well as that of Sequoia.
Finally, I'd like to introduce the rest of our team who are seated in the front of the room on my left and to your right. In alphabetical order, they are Girish Bhakoo, Andy Ewert, John Harris, Jake Hennemuth, Arman Kline, Trevor Magyar, Tom Mialkos, Terence Paré, and Chase Sheridan. I'd also like to introduce Jon Gross who is our Director of Client Services. With that, we're ready for your questions.
Question:
I noticed that you trimmed your stake in Wal-Mart and increased it in Target. I was wondering if you might talk about Target, its position and why you like it so much.
David Poppe:
What I would say is we bought most of the Target before we sold any Wal-Mart. Sequoia still holds Wal-Mart.
Interestingly, I think if you look over the last seven years since 2001, Wal-Mart and Target have almost identical EPS growth rates. I think going forward, both are likely to have pretty good EPS growth rates. Right now, Wal-Mart might be a little bit better positioned in that its business is more oriented to food, commodities and staples.
Read the full transcript
Tuesday, September 16, 2008
TRANSCRIPT & VIDEO: Warren Buffett Tells CNBC Treasury "Did Exactly the Right Thing" on Fannie/Freddie
In a live interview this morning on CNBC's Squawk Box, Warren Buffett told our Becky Quick that Treasury Secretary Henry Paulson "did exactly the right thing" when the government took control of Fannie Mae and Freddie Mac over the weekend.
Here are a video clip and transcript of the entire on-air telephone coversation.
Becky Quick: Mr. Buffett, thank you for joining us this morning. I want to get your thoughts on this plan for Fannie Mae and Freddie Mac.
Warren Buffett: Well, I think the Secretary (Paulson) did exactly the right thing. I don't think there was an alternative that was anywhere close to this one in terms of calming the markets, in terms of providing an ongoing function for the two that makes any change less abrupt, the changes that are going to occur with the two companies. So I couldn't, I wouldn't have changed anything in the plan myself.
Entire transcript and Video
Vanguard Chairman John Brennan Commentary on Investing: Lost decade, found perspective
A few months ago, The Wall Street Journal ran a front-page story with the headline "Stocks Tarnished by 'Lost Decade.'" The article noted that the stock market was trading at the same level that it had been nine years previous and suggested that the prospect of a decade with no (or negative) returns for equities is quite real.
This is startling, perhaps, but also true.
After the dizzying tech-fueled run-up of the late 1990s, the broad U.S. stock market peaked in 2000. Since then, we've had some steep downs, ups—and downs. The market briefly reached new highs in October 2007 but retreated from those levels in the fallout from the subprime lending crisis.
Over the next year or so, as we draw closer to the ten-year anniversary of the market's 2000 high-point, the ten-year return figures for stocks and stock funds are likely to remain modest—even if the market produces respectable returns until then. Simply put, the market's peak is casting a long shadow.
Sources: Bloomberg, Vanguard.
Note: Data through June 23, 2008.
Read the full article
Monday, September 15, 2008
Walter Schloss: Benjamin Graham and Security Analysis: A Reminiscence
Ben Graham was an original thinker as well as a clear thinker. He had high ethical standards and was modest and unassuming. He was one of a kind. I worked for him for nearly 10 years as a security analyst.
In re-reading the preface to the first edition of Security Analysis, I am impressed all over again with Ben’s views. I quote . . . “[W]e are concerned chiefly with concepts, methods, standards, principles, and above all with logical reasoning. We have stressed theory not for itself alone but for its value in practice. We have tried to avoid prescribing standards which are too stringent to follow or technical methods which are more trouble than they are worth.”
Security Analysis says it all. It is up to analysts and investors to put Ben’s ideas into practice.
Read the full article
In re-reading the preface to the first edition of Security Analysis, I am impressed all over again with Ben’s views. I quote . . . “[W]e are concerned chiefly with concepts, methods, standards, principles, and above all with logical reasoning. We have stressed theory not for itself alone but for its value in practice. We have tried to avoid prescribing standards which are too stringent to follow or technical methods which are more trouble than they are worth.”
Security Analysis says it all. It is up to analysts and investors to put Ben’s ideas into practice.
Read the full article
Get Ready for Rising Prices
by David Dreman
The markets, the dollar and commodity prices have all plunged and then rebounded. Financials are still falling. Economic news both in the U.S. and abroad continues to get worse. How do you chart a course in all this? Through all the smoke, and the cacophony of distressed voices on the financial battlefield, I find several things you can sensibly do.
Before you do any of them, you need to recognize the dilemma that the Federal Reserve and the Administration find themselves in—and are powerless to resolve. As investors are painfully aware, banks, investment banking firms and Fannie Mae and Freddie Mac (which have almost become penny stocks) are still drowning in seemingly endless pools of bad mortgages. Despite ample borrowings from an indulgent Fed, banks are far less liquid than when the crisis began. As loan defaults continue, they’re going to have to write down their portfolios even more, further impairing their capital and shrinking their stock prices. They’re reaching a point where they can’t raise new funds without badly diluting current shareholders. Thus the input of new funds by the Fed hasn’t lowered rates for mortgages or raised the financial institutions’ liquidity.
Consumers are trapped by stagnant wages, depleted savings and falling house prices. They’re slipping behind on their mortgage and home loan payments, and their spending is being squeezed harder than in more than a generation. So the Fed and the Treasury have no choice but to keep interest rates low until the current liquidity problems are under control. Not to do so would result in a steep recession and the threat of a financial panic. Yet keeping rates down risks damage to the economy from the highest inflation since the 1978–81 period, when prices rose at an average of 11% a year. That’s the Fed’s dilemma.
The July Consumer Price Index was 5.6% higher than a year earlier, the Producer Price Index 9.8% higher. Import prices, thanks to a weak dollar and expensive oil, are 21.6% above a year ago, the largest one-year increase since the index began in 1982. Optimists predict that energy, raw material, commodity and import prices, the strongest forces behind rising inflation, are likely to reverse direction and drop significantly. Wishful thinking. The world is short of oil, and the appetite for it keeps growing at almost double the rate of new discoveries. There hasn’t been a year since 1984 when new finds outstripped consumption. Even if a recession slows down oil use in the U.S. and Europe, demand will still increase in China, India and the Middle East. Rapid industrialization in those regions will continue to drive up commodity prices.
Read the full article
The markets, the dollar and commodity prices have all plunged and then rebounded. Financials are still falling. Economic news both in the U.S. and abroad continues to get worse. How do you chart a course in all this? Through all the smoke, and the cacophony of distressed voices on the financial battlefield, I find several things you can sensibly do.
Before you do any of them, you need to recognize the dilemma that the Federal Reserve and the Administration find themselves in—and are powerless to resolve. As investors are painfully aware, banks, investment banking firms and Fannie Mae and Freddie Mac (which have almost become penny stocks) are still drowning in seemingly endless pools of bad mortgages. Despite ample borrowings from an indulgent Fed, banks are far less liquid than when the crisis began. As loan defaults continue, they’re going to have to write down their portfolios even more, further impairing their capital and shrinking their stock prices. They’re reaching a point where they can’t raise new funds without badly diluting current shareholders. Thus the input of new funds by the Fed hasn’t lowered rates for mortgages or raised the financial institutions’ liquidity.
Consumers are trapped by stagnant wages, depleted savings and falling house prices. They’re slipping behind on their mortgage and home loan payments, and their spending is being squeezed harder than in more than a generation. So the Fed and the Treasury have no choice but to keep interest rates low until the current liquidity problems are under control. Not to do so would result in a steep recession and the threat of a financial panic. Yet keeping rates down risks damage to the economy from the highest inflation since the 1978–81 period, when prices rose at an average of 11% a year. That’s the Fed’s dilemma.
The July Consumer Price Index was 5.6% higher than a year earlier, the Producer Price Index 9.8% higher. Import prices, thanks to a weak dollar and expensive oil, are 21.6% above a year ago, the largest one-year increase since the index began in 1982. Optimists predict that energy, raw material, commodity and import prices, the strongest forces behind rising inflation, are likely to reverse direction and drop significantly. Wishful thinking. The world is short of oil, and the appetite for it keeps growing at almost double the rate of new discoveries. There hasn’t been a year since 1984 when new finds outstripped consumption. Even if a recession slows down oil use in the U.S. and Europe, demand will still increase in China, India and the Middle East. Rapid industrialization in those regions will continue to drive up commodity prices.
Read the full article
Sunday, September 14, 2008
Wintergreen Fund Semi-annual Report
The last six months have been filled with volatile worldwide financial markets that have kept all investors on their toes. The apparent freefall of some securities is providing huge buying opportunities for value investors, but at the same time the daily market fluctuations are somewhat bewildering to investors as we navigate turbulent market conditions. Wintergreen Fund has been affected by this volatile market: the Fund’s performance for the first six months of 2008 was (11.86%) only slightly better than the Standard & Poor’s 500 Composite Index at (11.91%). The market has not discriminated between high-quality and low-quality companies; virtually every stock has declined. Generally, markets reward solid, stable companies, but this year even the best companies have suffered. The movement from easy credit to little or no available credit has restricted normal business operations and slowed down speculation. We believe companies with the following three characteristics are great long-term destinations for investor capital, even though the short-term quotations are less than favorable: solid businesses that generate cash; businesses with pricing power; and businesses with rational management who create value for their shareholders.
A favorite story of mine as a child was “The Little Engine That Could” by Watty Piper. In this story, a long train needed help to get over a large mountain. Various railroad engines that had the capacity to move the train refused to help. They said the job was too big and difficult for them, and the mountain was too steep. The engines that were designed to haul heavy freight would not attempt to move the huge train. Eventually a small engine that didn’t appear to have the necessary get-up-and-go was asked for assistance and that small engine agreed to try to help the large train. Using all of its power and repeating ‘I think I can, I think I can’, the small engine got the freight train up to the top of the mountain. As the train went down the tracks on the far side of the mountain to deliver toys and treats to the children who had been waiting, the little engine repeated the phrase, ‘I thought I could, I thought I could’.
In this global market that looks too big for anyone or anything to bring it back to a more stable environment, I think that solid analysis of companies and careful accumulation of underpriced stocks has the potential to yield great rewards. Like the little engine that put its head down and worked at its assignment, the pursuit of fundamental research coupled with an appreciation of the consistency of human behavior should identify the securities that I believe will survive and thrive in the future. Now is the time when some of these companies are on sale. Although no one knows precisely when, it is inevitable that these wild bargain prices will at some point in time come to a close. When that happens, and with the benefit of 20-20 hindsight, many investors will wish they had accumulated a bigger stake in these bargain companies.
Read the full report (pdf)
A favorite story of mine as a child was “The Little Engine That Could” by Watty Piper. In this story, a long train needed help to get over a large mountain. Various railroad engines that had the capacity to move the train refused to help. They said the job was too big and difficult for them, and the mountain was too steep. The engines that were designed to haul heavy freight would not attempt to move the huge train. Eventually a small engine that didn’t appear to have the necessary get-up-and-go was asked for assistance and that small engine agreed to try to help the large train. Using all of its power and repeating ‘I think I can, I think I can’, the small engine got the freight train up to the top of the mountain. As the train went down the tracks on the far side of the mountain to deliver toys and treats to the children who had been waiting, the little engine repeated the phrase, ‘I thought I could, I thought I could’.
In this global market that looks too big for anyone or anything to bring it back to a more stable environment, I think that solid analysis of companies and careful accumulation of underpriced stocks has the potential to yield great rewards. Like the little engine that put its head down and worked at its assignment, the pursuit of fundamental research coupled with an appreciation of the consistency of human behavior should identify the securities that I believe will survive and thrive in the future. Now is the time when some of these companies are on sale. Although no one knows precisely when, it is inevitable that these wild bargain prices will at some point in time come to a close. When that happens, and with the benefit of 20-20 hindsight, many investors will wish they had accumulated a bigger stake in these bargain companies.
Read the full report (pdf)
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