Common sense & Warren E. Buffett

[trysail]

Today marks the release of Warren Buffett's Annual Letter to Shareholders ( of Berkshire Hathaway Corporation ). It is required reading for many ( and should be for many others ). Buffett's extraordinary success is, by now, well-known. Less appreciated is the fact that his accomplishment has been achieved by high ethical standards, honesty, "fair dealing" and candor.

I sorely wish there were someone who could replace him. The country and the investment world deserve at least one voice that is both supremely rational and absolutely incorruptible.

It also happens that he writes well ( in recent years, he has used editorial assistance ).

The following excerpts from this year's letter are his views on Fannie Mae, Freddie Mac, government oversight of those entities and residential real estate finance. The Annual Letter is copyrighted material and I quote small portions of it.



Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks. They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.

Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had never heard of). So we decided to close up shop. Though we were under no pressure and were operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives. Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

For a case study on regulatory effectiveness, let’s look harder at the Freddie and Fannie example. These giant institutions were created by Congress, which retained control over them, dictating what they could and could not do. To aid its oversight, Congress created OFHEO in 1992, admonishing it to make sure the two behemoths were behaving themselves. With that move, Fannie and Freddie became the most intensely-regulated companies of which I am aware, as measured by manpower assigned to the task. On June 15, 2003, OFHEO (whose annual reports are available on the Internet) sent its 2002 report to Congress – specifically to its four bosses in the Senate and House, among them none other than Messrs. Sarbanes and Oxley.

The report’s 127 pages included a self-congratulatory cover-line: “Celebrating 10 Years of Excellence.” The transmittal letter and report were delivered nine days after the CEO and CFO of Freddie had resigned in disgrace and the COO had been fired. No mention of their departures was made in the letter, even while the report concluded, as it always did, that “Both Enterprises were financially sound and well managed.” In truth, both enterprises had engaged in massive accounting shenanigans for some time. Finally, in 2006, OFHEO issued a 340-page scathing chronicle of the sins of Fannie that, more or less, blamed the fiasco on every party but – you guessed it – Congress and OFHEO...

*******​

[ On housing and residential real estate mortgages ]

...At that time, much of the industry employed sales practices that were atrocious. Writing about the period somewhat later, I described it as involving “borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent.”

To begin with, the need for meaningful down payments was frequently ignored. Sometimes fakery was involved. (“That certainly looks like a $2,000 cat to me” says the salesman who will receive a $3,000 commission if the loan goes through.) Moreover, impossible-to-meet monthly payments were being agreed to by borrowers who signed up because they had nothing to lose. The resulting mortgages were usually packaged (“securitized”) and sold by Wall Street firms to unsuspecting investors. This chain of folly had to end badly, and it did.

... industry losses were staggering. And the hangover continues to this day.

This 1997-2000 fiasco should have served as a canary-in-the-coal-mine warning for the far-larger conventional housing market. But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle. Instead, in an eerie rerun of that disaster, the same mistakes were repeated with conventional homes in the 2004-07 period: Lenders happily made loans that borrowers couldn’t repay out of their incomes, and borrowers just as happily signed up to meet those payments. Both parties counted on “house-price appreciation” to make this otherwise impossible arrangement work. It was Scarlett O’Hara all over again: “I’ll think about it tomorrow.” The consequences of this behavior are now reverberating through every corner of our economy...

... The answer is elementary, going right back to Lending 101. Our borrowers simply looked at how full-bore mortgage payments would compare with their actual – not hoped-for – income and then decided whether they could live with that commitment. Simply put, they took out a mortgage with the intention of paying it off, whatever the course of home prices.

Just as important is what our borrowers did not do. They did not count on making their loan payments by means of refinancing. They did not sign up for “teaser” rates that upon reset were outsized relative to their income. And they did not assume that they could always sell their home at a profit if their mortgage payments became onerous. Jimmy Stewart would have loved these folks...

...Commentary about the current housing crisis often ignores the crucial fact that most foreclosures do not occur because a house is worth less than its mortgage (so-called “upside-down” loans). Rather, foreclosures take place because borrowers can’t pay the monthly payment that they agreed to pay. Homeowners who have made a meaningful down-payment – derived from savings and not from other borrowing – seldom walk away from a primary residence simply because its value today is less than the mortgage. Instead, they walk when they can’t make the monthly payments.

Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.

The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.

Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective...

 

[amicus]

I see or hear nothing coming out of Washington, D.C. or the financial community in general that pertains to resolving the issue or filing charges from those that perpetrated the scheme, went along with it and benfited from it.

?

Amicus...

 

[DeeZire]

...At that time, much of the industry employed sales practices that were atrocious. Writing about the period somewhat later, I described it as involving “borrowers who shouldn’t have borrowed being financed by lenders who shouldn’t have lent.”

To begin with, the need for meaningful down payments was frequently ignored. Sometimes fakery was involved. (“That certainly looks like a $2,000 cat to me” says the salesman who will receive a $3,000 commission if the loan goes through.) ...

Ami, I totally agree with you. The question is, do we also prosecute those in the private sector - your capitalist heroes? - or only the regulators and the people in Freddie and Fannie who cooked the books?

 

[amicus]

I have a detached sympathy for the young girl that chose to take the life of her unborn child as a convenient method of birth control; I have that same feeling for the free market investment bankers, mortgage charlatans and everyone, public or private, involved in criminal action.

Then, yes, employ due process and prosecute. But the root of the matter lies within the Congress and the moral attitude that prevails throughout government. If that is not addressed, you will see more of the same and are in fact seeing it now, in the auto bailout, the benefits given in the form of stimulus to selected portions of the economy that are adverse to the functionings of a free market.

The 'green' industry is a prime example, many a free market capitalist will forego their principles and gather round the trough as that is where the 'government' money is spilling out.

Amicus...

 

[JAMESBJOHNSON]

DEE ZIRE always makes the argument that, because a rose smells better than a cabbage, it makes better soup, too.

Dear, GM is no different than USPS...if you tried to deliver 1st class mail USPS would shit its pants; if you tried to build the DEE ZIRE BELCHFIRE 2009, GM would shit its pants. GM is no more capitalist than USPS.

 

[trysail]

How to Minimize Investment Returns​

( An excerpt from the 2005 Letter To Shareholders of Berkshire Hathaway Corporation )
© 2006, Warren E. Buffett

It’s been an easy matter for Berkshire and other owners of American equities to prosper over the years. Between December 31, 1899 and December 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising answer is at the end of this section.) This huge rise came about for a simple reason: Over the century American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.

The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a company’s losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B. And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic – no shower of money from outer space – that will enable them to extract wealth from their companies beyond that created by the companies themselves.

Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family – generation after generation – becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers – for a fee, of course – obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what. So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend and, in a wide variety of ways, they urge it on.

After a while, most of the family members realize that they are not doing so well at this new “beatmy-brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager – yes, us – and get the job done professionally.” These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.

It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group – we’ll call them the hyper-Helpers – appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers – brokers, managers, consultants – are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of
zombies?”

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments – in addition to stiff fixed fees – are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

And that’s where we are today: A record portion of the earnings that would go in their entirety to owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses – and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this – heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

* * * * * * * * * * * *​

Here’s the answer to the question posed at the beginning of this section: To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3% compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by December 31, 2099 to – brace yourself – precisely 2,011,011.23. But I’m willing to settle for 2,000,000; six years into this century, the Dow has gained not at all.

 

[trysail]

Unless you're familiar with Berkshire Hathaway you're not likely to know who Charlie Munger is. An attorney and Caltech graduate, he is a bright, outspoken man and his contribution to Buffett's ( and Berkshire's ) success is greatly underappreciated.
_________________________
( Fair Use Excerpt )



Berkshire’s Munger Says ‘Venal’ Banks May Evade Needed Reform
By Christine Harper, Betty Liu and Erik Holm

May 2 (Bloomberg) -- Berkshire Hathaway Inc. Vice Chairman Charles Munger, whose company is the largest private shareholder in Goldman Sachs Group Inc. and Wells Fargo & Co., said banks will use their “enormous political power” to prevent changes to the industry that would benefit society.

“This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” Munger, 85, said yesterday in an interview with Bloomberg Television. “It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”

Munger said policy makers should seek to impose limits on banks that are deemed “too big to fail” after financial institutions worldwide suffered more than $1 trillion in losses. The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the recession.

“We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed,” Munger said. “If they are too big to fail, they are too big to be allowed to be as gamey and venal as they’ve been -- and as stupid as they’ve been.”

Omaha, Nebraska-based Berkshire Hathaway, run by Munger’s long-time business partner Warren Buffett, nevertheless is a large investor in some of the biggest U.S. banks.

Goldman Sachs

Berkshire paid $5 billion in September for preferred stock and warrants in New York-based Goldman Sachs, which was the world’s most profitable and highest paying securities firm before converting to a bank holding company. Goldman is now the fifth-biggest U.S. bank by assets.

Berkshire’s second-largest holding by market value after Coca-Cola Co. is Wells Fargo, the sixth-biggest U.S. bank. Berkshire also owns stakes in Bank of America Corp., the biggest U.S. bank by assets, as well as U.S. Bancorp, M&T Bank Corp. and SunTrust Banks Inc.

Munger said the financial companies spent $500 million on political contributions and lobbying efforts over the last decade. They have a “vested interest” in protecting the system as it exists because of the high levels of pay they were earning, he said. The five biggest U.S. securities firms, only two of which still exist as independent companies, paid their employees about $39 billion in bonuses in 2007.

“They would like to get back as closely as possible to business as usual, and they have enormous political power,” he said.

 

[sr71plt]

I sorely wish there were someone who could replace him. The country and the investment world deserve at least one voice that is both supremely rational and absolutely incorruptible.

Why does he need replacing? Is he going somewhere?

 

[JamesSD]

Well, BoA's CEO was scapegoated and ousted, although is golden parachute should make his landing pretty serene.

The free market created this mess. Government did little to fix it, but the fact is, derivatives were hailed as a brilliant innovation that only the free market could create. I think Buffet does a good job of demonizing derivatives.

The free market is doing little to fix the mess. The government permitted a lot of mergers that led to a situation where our entire enconomic system can't permit poorly run corporations like Citigroup and AIG to collapse. The Free Market painted itself into a corner. Our poor choices are government intervention, or 10-20 years of chaos waiting for the market to correct itself.

The reason no one is being persecuted is the people responsible are the power elite. The rich CEOs and government fat cats are happy not to go after each other beyond a little light finger pointing.

 

[ishtat]

I notice that you didn't mention General Reinsurance Corporation which is one of Berkshires biggest assets and not an unqualified success.

General Re has recently had a report issued by an independent commissioner in Australia which concluded that they had issued questionable reinsurance contracts which had enabled certain insurance companies to falsely state their profit and solvency position and thus deceive shareholders.

(Essentially they issued a reinsurance contract for say 100 million the premium for which would be paid over say 7 years at say 15 million per annum. But then Gen Re paid a claim of say 85 million on day one. The insurer would then book a receipt of 85 and an expense of 15 million in year one's published accounts!)

Obviously the primary fault lies with the insurer but it was clear that Gen Re knew what was happening so they were also culpable. In fact two of the insurers went bust so Gen re never got (all) of their original premium and they have just agreed to a settlement which involves them paying a $90Million dollar penalty.

To be fair to Buffett, he has been very open about these so called financial reinsurances issued by Gen Re and wielded the axe with some vigour amongst the responsible executives.

$90 million may not sound a lot by today's standards but it is quite a pile in an economy which accounts for less than 1.8 % of the world's total.

More importantly Buffett has reined in the use of financial reinsurance to all its other general insurance customers even to those who accounted it properly.

 

[trysail]

...General Reinsurance Corporation which is one of Berkshires biggest assets and not an unqualified success...

...To be fair to Buffett, he has been very open about these so called financial reinsurances issued by Gen Re and wielded the axe with some vigour amongst the responsible executives...

Ish-
One of the aspects of Buffett's behavior and character that has both enabled and contributed to his investment prowess is his intellectual honesty. Very few people in the investment field publicly own up to mistakes— WEB is one of those few. He has repeatedly acknowledged both verbally and in writing that the General Re acquisition was a mistake. His successes are, of course, widely reported and require no recital. For at least the last decade and a half, he has operated in the extremely bright glare of widespread media and public scrutiny.

He has held out many of his mistakes ( Salomon Brothers, U.S. Air and last year's ConocoPhillips [ the mistake being price, not principle ] are prominent examples ) as object lessons for the benefit of his students and has described the specific errors of his analytical failure in each instance.

In the U.S., several General Re executives have been convicted of entering into improperly accounted-for agreements with the now notorious AIG. The course of the investigation required Buffett's testimony as both witness for the prosecution and to refute defense suggestions that he was contemporaneously aware of particulars of the transactions. Those allegations were never corroborated and Buffett's testimony has been borne out by other sworn testimony.

 

[trysail]

Why does he need replacing? Is he going somewhere?

WEB is now seventy-nine years old. He has played an unparalleled role in the investment field for many decades and he may, regrettably, be one of those few people who are truly irreplaceable.

As the most successful investor in history and the possessor of extraordinary talents and skills, Buffett is unique for his lifelong willingness to teach others and disclose his thought and methodology. His reputation for integrity is both deserved and has been earned many times over.

Integrity is a sadly missing element in the investment field because conflicts of interest now abound.

Over the past fifty years, the investment management field has undergone a fundamental transformation from a field dominated by small firms acting as fiduciaries to one that is now dominated by large marketing-driven organizations. The role of individuals has been deemphasized and replaced by brand managers. One result is that no individuals possessing the profound abilities, integrity and gravitas of WEB have emerged or are likely to emerge as potential successors to his mantle. The public and the country are poorer for it.

Here's an excellent piece on the historical transformation of a large part of the field:


https://personal.vanguard.com/bogle_site/sp20060224.htm

Mutual Funds: How a Profession with Elements of a Business Became a Business with Elements of a Profession
Remarks by John C. Bogle
Founder and Former Chairman, The Vanguard Group
At Boston Security Analysts Society
Boston, Massachusetts
February 24, 2006

 

[trysail]

[ Italics are mine ]



Excerpted from the 1996 Annual Report of Berkshire Hathaway

Let me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

Should you choose, however, to construct your own portfolio, there are a few thoughts worth remembering. Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.

Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.


© 1997 Warren E. Buffett

 

[JAMESBJOHNSON]

TRYSAIL

What I dont understand is why American schools ignore finance and economics in their core curriculum. I think it would be dazzling for a high school senior to get a full year of Marxist, Keynesian, and maybe Chicago philosophy. Simply lay it out with examples of how they work and fail in practice.

I just read TRILLION DOLLAR MELTDOWN by Charles R. Morris. Got an opinion?

I'm now reading BAD MONEY by Kevin Phillips.

 

[trysail]

TRYSAIL

What I dont understand is why American schools ignore finance and economics in their core curriculum. I think it would be dazzling for a high school senior to get a full year of Marxist, Keynesian, and maybe Chicago philosophy. Simply lay it out with examples of how they work and fail in practice.

I just read TRILLION DOLLAR MELTDOWN by Charles R. Morris. Got an opinion?

I'm now reading BAD MONEY by Kevin Phillips.

The question of why students in an ostensibly free market society typically receive no education in economics is one that has confounded and befuddled observers for more than half a century. I am at a loss to explain it; it makes no sense.

It is rare for me to read a book on current business affairs; most of them are penned by business reporters. My first-hand experience and knowledge make it difficult to tolerate most of the glib generalities ( if not outright falsehoods ) that the majority of them spout.

Bethany McLean and Peter Elkind's book Enron: The Smartest Guys In The Room is a case in point. The book was ( for obvious commercial reasons ) aimed at the general public ( and shows it! ) http://en.wikipedia.org/wiki/Enron:_The_Smartest_Guys_in_the_Room Both the general media and the business press leave the impression that ALL of Wall Street was sucked in by these guys; that simply isn't true. The boys from Enron were NEVER "The Smartest Guys In The Room" for one very simple reason— when I was working, I was always the smartest guy in the room. Warren Buffett publicly labeled Ken Lay a phony ( that is extremely rare since Buffett is almost religious in observing the rule of "praise individually, criticize generally" ) as a result of an acquaintance established by Houston Natural Gas' acquisition of Internorth ( the combined entity then changed its name to Enron— there again lies one more example of error by the media which repeatedly referred to Ken Lay as the "founder" of Enron. Nothing could be further from the truth, Lay was hired help at Houston Natural ).

There are some exceptions ( there always are ). Bryan Burrough and John Helyar's book Barbarians At The Gate was a decent recital of the RJR/KKR/Ross Johnson affair.
http://en.wikipedia.org/wiki/Barbarians_at_the_gate. Tom Petzinger's Oil and Honor was a good explication of the Texaco-Pennzoil-Getty Oil fiasco caused by Goldman Sach's Geoff Boisi.
http://en.wikipedia.org/wiki/Joe_Jamail ( I note that Wikipedia's entry on Getty Oil is laughably inaccurate ). Alice Schroeder's biography of Warren Buffett reveals things hitherto unknown by even ardent Buffettologists. Peter L. Bernstein's Against The Gods: The Remarkable Story of Risk is a quite readable exposition of the development of statistical methods and their myriad applications.


I admit to a dislike of Kevin Phillips; for that reason I'm unlikely to read anything he's authored. Respecting the Morris book, I rarely read books that are rushed into print in order to capture interest in current topics.

 

[trysail]

You'd be well-advised to think long and hard before ever betting against "Uncle" Warren.


________________________________
http://www.bloomberg.com/apps/news?pid=20601084&sid=aEHpacQ5jEpw

( Fair Use Excerpt )
Berkshire Reaches $100,000, Hitting Eight-Month High
By Erik Holm

Aug. 3 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. reached $100,000 a share for the first time since January as its derivative bets and holdings in firms including Goldman Sachs Group Inc. and Wells Fargo & Co. gained in value.

Berkshire, the most expensive stock on the New York Stock Exchange, gained $3,000, or 3.1 percent, to $100,000 at 4:15 p.m. in New York Stock Exchange composite trading. Berkshire shares are up more than 40 percent since reaching a six-year low in March. The company’s highest closing price is $149,200 on Dec. 10, 2007.

Berkshire, where Buffett is chairman and chief executive officer, is benefiting as equity markets recover. Stocks the Omaha, Nebraska-based firm held at the start of the second quarter gained about $11 billion over three months, and losses from derivative bets tied to the world’s stock markets may be reversing.

“People’s fears about the derivatives were all based on the perception from six months ago that the world was ending...” “...They’re starting to recognize that Warren Buffett knew what he was doing there, and the performance of the financials in the investment portfolio has just been massive.”

Berkshire is the largest shareholder in American Express Co., whose stock has more than doubled since the end of the first quarter. Buffett’s firm is also the biggest investor in Wells Fargo, which has jumped about 81 percent, Goldman Sachs, which rose 55 percent, and Burlington Northern Santa Fe Corp., up by about a third...

*****​

...Berkshire’s derivative contracts tied to stock markets contributed to declining profits at the company last year as the indexes fell. The firm had $10.2 billion in liabilities on the so-called equity puts as of March 31. The liabilities are accounting losses that reflect the falling value of the stock indexes, not cash that Berkshire has paid out.

Under the agreements, Berkshire must pay out if, on specific dates starting in 2019, four market indexes are below the point where they were when he made the deals, according to the filing. In the meantime, Berkshire can invest the cash and keep any profits. The derivatives were sold to undisclosed buyers for $4.9 billion, according to Buffett’s most recent letter to shareholders.

 

[3113]

Warren is indeed one of my heroes, too. Back in March he wisely informed people:

Warren Buffett (news - web sites), the world's second-richest person, wants to pay more taxes. And he wants the rest of corporate America to pay more too.In his annual letter to shareholders of his Berkshire Hathaway Inc. holding company, released on Saturday, the 73-year-old Buffett said Berkshire's taxes rose more than eleven-fold to $3.3 billion from 1995 to 2003, as profits rose ten-fold to $8.15 billion. During the same period, federal income taxes paid by all U.S. companies fell by 16 percent, to $132 billion.

"We hope our taxes continue to rise in the future -- it will mean we are prospering -- but we also hope that the rest of corporate America antes up along with us," said Buffett, who has previously criticized Bush administration tax policy.

He supports both Obama and the stimulus package.

 

[trysail]

[ Italics are mine ]


Excerpted from the 2007 Annual Report of Berkshire Hathaway Corporation


"Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."

© 2008 Warren E. Buffett

 

[voluptuary_manque]

[ Italics are mine ]


Excerpted from the 2007 Annual Report of Berkshire Hathaway Corporation


"Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep."

© 2008 Warren E. Buffett

That ain't just whistling Dixie! Any public employee who isn't squirreling away money on top of his/her official pension plan deserves to go hungry!

 

[trysail]

By comparison to the government pension nightmare, the private sector's sins are chickenfeed ( government pension fund accounting standards are notoriously lax by comparison to mandated corporate accounting standards ). If you think corporate pension practices are dodgy, you haven't seen anything until you've seen the completely deceptive thimblerigging that state and local governments and authorities practice— it's one more accident waiting to happen. This is a long and extremely depressing article; be sure you're sitting down and have access to strong drink before you read about the lovely ticking time bomb the politicians have placed in every citizen's wallet:

( This following is a very brief excerpt from )
http://www.bloomberg.com/apps/news?pid=20601109&sid=alwTE0Z5.1EA&refer=exclusive

...Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.

The paper alchemy gives governors and legislators the easy choice to contribute too little or nothing to the funds, year after year.

The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion...

 

[trysail]

Warren Buffett wrote an op-ed piece in the New York Times earlier this week. Leaving huge monetary and fiscal expansion in place for too long is a recipe for economic disaster. Mr. Buffett did the math in a very simple and understandable way. This year we face a $1.8 trillion deficit. Just so you understand what a trillion means, a trillion is one million times one million. How does a millionaire become a trillionaire? He has to earn one million dollars a million times. If you could earn $1 million every single day of your life, you would reach $1 trillion in just under 2,740 years. This fiscal year alone, our government will spend $1.8 trillion more than it takes in and it will have to borrow (and in theory pay back) every one of those dollars. That is a big number.

Mr. Buffett tries to explain how this is all going to happen. In round numbers, our trade deficit will push $400-500 billion overseas that will return in the form of Treasury bond purchases. Americans are starting to save more as well. They might buy a similar amount of bonds. Add the two and you are roughly halfway there. What about the rest? The Fed prints it. We all know what that means in the long run. It means inflation. Printing more money quite obviously dilutes the value of the dollar. President Obama says he will cut the deficit in half during his first term. If he accomplishes that and brings the deficit down to a mere $900 billion he might be able to allow the Fed to turn off the printing presses if the total of our trade deficit and net American savings stays in the $900 billion range. That is a lot of ifs.

 

[trysail]

Today is Warren Buffett's 80th birthday.


He is a true phenomenon and it is highly improbable that we will ever see his like again. He is a national asset. If you want to learn about investing, his writing on the subject is sui generis— because he's honest, smart as hell and writes well.


No one has ever made a similar effort to explain his methods, principles and thoughts. It is a gift to the public and available to all. He has never pulled any punches respecting his disgust for most of Wall Street and the theoreticians of academia ( many of whom have done nothing but led their students and the public astray while providing a mantle of respectability to swindlers ).

 

[Stella_Omega]

Warren is indeed one of my heroes, too. Back in March he wisely informed people:

Warren Buffett (news - web sites), the world's second-richest person, wants to pay more taxes. And he wants the rest of corporate America to pay more too.In his annual letter to shareholders of his Berkshire Hathaway Inc. holding company, released on Saturday, the 73-year-old Buffett said Berkshire's taxes rose more than eleven-fold to $3.3 billion from 1995 to 2003, as profits rose ten-fold to $8.15 billion. During the same period, federal income taxes paid by all U.S. companies fell by 16 percent, to $132 billion.

"We hope our taxes continue to rise in the future -- it will mean we are prospering -- but we also hope that the rest of corporate America antes up along with us," said Buffett, who has previously criticized Bush administration tax policy.

He supports both Obama and the stimulus package.

Trysail can't hear you unless you put your words in big colored font, 3113. I hope you don't mind...

 

[cloudy]

Trysail can't hear you unless you put your words in big colored font, 3113. I hope you don't mind...

Not only that, but not long ago he said he thought this should be an "author's forum, period."

Since trysail hasn't written anything, but only copies from others, I suppose he won't be posting here anymore.

 

[trysail]

© 2008 Warren E. Buffett
Excerpted from the 2007 Annual Report of Berkshire Hathaway Corporation

...Whatever pension-cost surprises are in store for shareholders down the road, these jolts will be surpassed many times over by those experienced by taxpayers. Public pension promises are huge and, in many cases, funding is woefully inadequate. Because the fuse on this time bomb is long, politicians flinch from inflicting tax pain, given that problems will only become apparent long after these officials have departed. Promises involving very early retirement – sometimes to those in their low 40s – and generous cost-of-living adjustments are easy for these officials to make. In a world where people are living longer and inflation is certain, those promises will be anything but easy to keep...