Insightful article, worth a read. Many Black Swans Make the Metaphor Meaningless: Alice Schroeder
“A man who speaks this way is going to make enemies. Buffett, 80, has made his share, but Munger has a higher tolerance than Buffett for being disliked. He has come to play a role in the business world not unlike that once played by the critic H.L. Mencken, who stabbed the puffed-up preservers of the status quo with the sharp needle of searing, unforgettable prose.
I’ve heard Munger called hypocritical, heartless and pompous. Munger describes himself as imperious, irreverent and arrogant. It’s good to have somebody like that around. The business world is better off with a Munger to point out how far it has strayed. The people who control the world’s commerce need to hear it from one of their own.
Raisins and Turds
Besides, nobody else would say a lot of the entertaining things that Read the rest of this entry »
As usual, Alice’s Bloomberg column is a good read. Check out her new article, “Hollywood Model Could Create New Stars in R&D“.
Berkshire Audit Report: David Sokol’s Trading Violated Company Insider Trading Policies and ProceduresWednesday, 27 April, 2011
Today Berkshire Hathaway‘s Audit Committee released its report, “Trading in Lubrizol Corporation Shares by David Sokol” (PDF file). Have a read. Here is a notable paragraph,
“Mr. Sokol’s answer to Berkshire Hathaway’s CFO, Mr. Hamburg, concerning the investment bankers similarly fell short of the degree of candor required of a corporate fiduciary, and suggests his answer to Mr. Buffett’s earlier inquiry noted above was intended to deceive.“
Check out what Alice is saying in “World Learns New Facts Showing Buffett Was Misled” (here is an excerpt),
“However, upon several readings of this release, there do not appear to be *any* new significant facts that were unknown to Berkshire on March 30th when its initial press release was issued. These facts are only *new* to those of us who are reading the audit committee report “
and “Sokol Fights Back Round 1“.
Here are some notable media reports.
Bloomberg (Alice Schroeder), “Buffett Disciples Want ‘Oracle’ to Come Clean” [Apr 28 update] Highly recommended reading. Have a watch of Alice’s Bloomberg video interview. Here is an excerpt from the article (emphasis added),
“The problem isn’t the about-face. It is the missing explanation for why Berkshire went so easy on Sokol in the first place. Whatever the detailed reasons, ultimately it boils down to Berkshire’s reliance on Buffett’s personal judgment about his managers and his ability to delegate to them to the point of abdication. When this one-man infrastructure makes a mistake, it’s hard to admit that Buffett is at fault. Changes in the way the company is managed are personal, not corporate. Under the circumstances, the temptation is high to blame everything on a single rogue employee. That doesn’t excuse Sokol’s behavior, but the failure of oversight needs to be acknowledged and corrected. […] Read the rest of this entry »
Whatever happened to Warren Buffett’s famous saying, “Lose a shred of reputation for the firm, and I will be ruthless”? – 96,400 free lottery tickets ($3 million winnings)Thursday, 31 March, 2011
April 13th, 2011 Update: MarketWatch, “David Sokol knew of progress toward a possible Berkshire Hathaway Inc. bid for Lubrizol Corp. before he bought almost $10 million worth of stock in the lubricant company, according to a new regulatory filing.”
April 1st, 2011 Update: “Sokol affair “credit negative” for Berkshire: Moody’s”
As a fan of Warren Buffett, it saddens me to see David Sokol‘s surprise resignation, Warren’s press release about the resignation, and Sokol‘s CNBC appearance this morning. Seeing these and the many news reports today lead me to question if Warren has forgotten his saying as told in the 1996 book Buffett: The Making of An American Capitalist,
“Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.”
Alice Schroeder has become my “go-to” expert on all things Warren and Berkshire since she published Warren’s biography “Snowball” in 2008 and what I’ve learned of her as a reporter and as a person. I highly recommend you read Alice’s Bloomberg opinion piece, “Buffett Misses Chance to Show Moral Courage: Alice Schroeder” and her blog entry.
I think it is very important for someone like Alice to speak up and hold Warren accountable while his mind is still very sharp. I think Warren has set up some bad precedence for the next CEO. (Or may be this mess will paradoxically serve as what NOT to do?)
Here are excerpts from Alice’s opinion (emphasis added),
“What were they thinking? How could Warren Buffett excuse David Sokol’s trading in Lubrizol Corp. (LZ) stock while Sokol was pitching the company to Berkshire Hathaway Inc. (BRK/A) as an acquisition candidate?
Buffett and Sokol both say that nothing “unlawful” was going on (Sokol even went so far as to tell CNBC he did nothing inappropriate). Their explanation is that, because a deal with Lubrizol hadn’t actually been struck and wasn’t likely when Sokol bought his shares, it was all right for Sokol to profit from his knowledge of a possible deal.
On Wall Street, we call this kind of trading front-running, and everybody knows that it is wrong. People get fired for doing it. […]
In substance, when Sokol pitched the deal to Buffett, he was holding stock in Lubrizol that had the equivalent of free lottery tickets attached. These 96,400 lottery tickets gave Sokol unfair odds — odds far better than in the kind of lottery the general public gets to play. Read the rest of this entry »
The following are links and excerpts of a very insightful 6 part interview series of Alice Schroeder, author of Warren Buffett’s biography “The Snowball“, by Miguel Barbosa (Simoleon Sense). It is long, detailed and highly recommended. [HT Alice]
Simoleon Sense Interviews Warren Buffett’s Biographer, Alice Schroeder
– Part 1: The Forging of A Skeptic – From Accountant to Buffett’s Voice on Wall St. Here is an interesting excerpt,
Alice: […] At the time my former boss and mentor, Denny Beresford, was Chairman of the FASB (Financial Accounting Standards Board, the standard-setter for U.S. Generally Accepted Accounting Principles). He knew I was considering leaving Ernst & Young and suggested that I come work for the FASB. I took that job thinking that it would be intellectually challenging, analytical, and involve plenty of speaking and writing.
At the FASB,I was assigned, essentially by being next in line as the most recent arrival there, to a dreaded project, which was to oversee the issuance of some of the most important new accounting regulations for U.S. insurers in 20 or so years.
Nobody on the staff wanted to work on these. The insurance industry had been fighting ferociously for more than a decade to keep them from getting passed, and with a lot of success. […]
I got assigned to this project by chance, but I fell in love with the industry within a couple of weeks.
The main topic was SFAS 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts; I also went on to complete EITF 93-6, Accounting for Multiple-Year Retrospectively Rated Contracts; and, EITF 93-14, Accounting for Multiple-Year Retrospectively Rated Insurance Contracts by Insurance Enterprises and Other Enterprises.
Their titles are a mouthful, but essentially they all eliminate deceptive accounting practices in which reinsurance contracts were created specifically not to indemnify risk, but to shuffle or smooth earnings around from one accounting period to another – or artificially inflate an insurance company’s reported capital reserve one way or another.
If these rules passed, some companies and segments of the reinsurance industry would be losing their most profitable products, at least on a risk-adjusted basis. Conceptually, these deals were a very effective form of leveraging capital at very low, and even no, risk. They were very similar to the type of securitizations that got Enron in trouble. Not surprisingly, Wall Street also was starting to dabble in the business.
– Part 2: A Behind The Scenes Look At Wall St & Morgan Stanley. Here is an interesting excerpt,
Alice: […] So what is it like to be an analyst…When I started at Oppie it was very free form. Analysts used their judgment. Over time, as I moved through the different firms, especially Morgan Stanley, more and more requirements arose. There were things you had to write every time you published on a company. The financial models became standardized. Like any other business, the more you standardize something, the more you stamp out creativity. Read the rest of this entry »
$1 million, $1 million, $1 million – $100,000 $100,000 $100,000 – Managers’ Compensations – The Warren Buffett WayTuesday, 4 May, 2010
I love “Manager” Compensation, here is an excerpt,
“The files are full of letters that say, $1 million, $1 million, $1 million, $1 million. Some deviations plus or minus but rarely more than a few million. Mostly it is repetitious — $1 million, $1 million, $1 million, $1 million. After all, these guys are mindful their boss makes $100,000 a year.”
Also check out,
“Low Attendance” (excerpt: “A big-time reporter sought me out last week in desperation because of difficulty getting quality interviews. “Nobody is going to the meeting” this reporter said. Now, obviously a lot of people went to the meeting, 40,000 people or so. But the serious money managers this particular reporter wanted to interview were not going.“)
“Huge Mistakes Were Made at NetJets” (excerpt: “Rich talked to Warren nearly every single day — I witnessed it. NetJets was not some rogue operation buying planes at high prices without Warren’s knowledge, understanding, or consent.“).
“First of Many” – Some of Alice’s key takeaways from the Berkshire AGM.
Have a read of this insightful Businessweek article by Alice Schroeder (author of biography of Warren Buffett “Snowball“), “When CEOs Have Warren Buffett in Their Boardroom – What’s it like to have America’s greatest investor as your shareholder? Buffett’s biographer talks to CEOs who know“. Here is an excerpt (emphasis added),
Who wouldn’t love to pick up the phone and ask Warren Buffett for advice? People have spent more than $1 million just to have lunch with the man. He was voted the most admired corporate director in America by Directorship magazine in 2008. Chief executives of companies he has a stake in laud his patience, foresight, and ability to capture the essence of a complex financial situation in just a few words. They also like the fact that he usually leaves them alone as long as they’re getting the job done.
Sometimes Buffett emerges from behind his desk and shows a side of himself that’s far less familiar. When he sees something he doesn’t like in a company whose shares he owns, the famously passive investor can swing into action to protect his investment—jawboning behind the scenes, scolding, cutting opportunistic deals, even hiring and firing CEOs. For some of those on the receiving end of his activism, it can feel a bit like being attacked by Santa Claus.
Jim Ellis talks with Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life, about how the super-investor oversees the CEOs of companies in which he invests.
In life, I often try to learn the best ideas and practices from people I admire. At the same time, may be paying less focus on their shortcomings. Not because the shortcomings are less important but because other people may have similar failings and I might have learned NOT to make these mistakes already.
So this post is not about me deciding if Alice or Warren is “right”. I love both Alice and Warren for who they are (their insights and their failings) and not for who I want them to become. I guess what I want to say Alice has, taking her words for what they are, really shown her “genuine attempt to bring perspective and balance to the discussion [of Warren‘s investment decisions].”
As I get to know Alice more from “Snowball”, her Facebook fan page and her blog, I’ve grown to treasure her investment insights, admire her sense of humour and her determination to report things as she sees them. Deep insights and reporting in a fair and accurate manner are the qualities I seek when I read a reporter’s/author’s works, and are what I strive to achieve when I write my own reports in my blogs and in my examiner business and entertainment stories.
I now believe Warren had made a mistake.
If I were an important and rich man worthy of a biography, this is what I would have told Alice before I share years of my life with her and let her write my biography,
“Whenever my version is different from somebody else’s, Alice, use the MOST flattering version. Make up lies if you need to. Pay people to say good things about me. And you have to promise to Photoshop my photos.”
Seriously, I love both Alice and Warren. If I love Alice more, David (Alice’s lovely husband) will probably be kicking my ass. And if I love Warren more, I will probably be richer than I am because I will be spending a lot (and I mean a LOT) more time reading annual (and quarterly) reports of companies I may want to invest in.
In life, I like to focus on the positive things I can learn from. But then it doesn’t mean that I will forget about the negative things and don’t try to also learn from them (mainly to avoid these mistakes in my own life).
P.P.S. I left this in Alice’s post and thought it may be nice to include it here.
I know it is almost impossible for you and Warren to be closer again (I avoid using the word “friend”). Hell will probably freeze over first. But then, I am an eternal optimist.
You see, Hell was frozen when Apple first worked with Microsoft.
And hell was recently refrozen again when Apple decided to use Microsoft’s useless-piece-of-junk Bing as a default search engine on iPhone. So evidences suggest Hell often freeze at unexpected time and more often then scientists had previously estimated. Good luck to you and Warren.
Here is a link to Jeff Matthews’ insightful and enjoyable to read interview with Alice Schroeder, author of “The Snowball: Warren Buffett and the Business of Life“.
Here is an excerpt of one particular telling Q&A,
JM: You wrote extensively—I’d guess too extensively for most Buffettologists, not to mention for Buffett himself, if the rumors are true—of his personal life. In fact, you named his first wife’s lover. Having been a Wall Street analyst and having written a book about Warren Buffett, I know it is not easy to write something unflattering about a person you both like and admire.
How hard was it to physically put those words down in a book that would be read by WB, not to mention his best friends and family?
Also, where did the worst reaction come from, and do you think you could have or should have done anything differently?
AS: It’s strange that this is a controversy. A biography includes the details of the personal relationships that influenced the breakdown of the subject’s marriage. That goes without saying. You can’t really understand Warren Buffett without this information.
And of course I didn’t want to hurt Warren. I care about him as a human being. It was hard to know that he was going to be hurt and that I would be the instrument of his pain. But let us turn this around a bit.
Warren knew my work as an analyst. He knew that I was dogged about research and that I had a history of writing things that were true even if they upset people. He chose me for this project anyway. He may have thought, who knows what. That in exchange for such complete cooperation, I would owe him the loyalty of writing the version he wanted. As many people would. Nonetheless, he knew what he was getting when he chose me. That was not an accident.
He immediately began shoveling biographical material of an intensely personal nature at me. Until that point I had no idea of the situation I was walking into. Once I started to understand, it became my responsibility to do corroborative research. The choice was to tell the truth, which would hurt Warren, anger other people, and expose me to vindictiveness, or to lie, which would violate the reader’s trust and my integrity. I had to work myself up over and over to find the courage to tell the truth.
For the launch of the paperback of “The Snowball”, Alice Schroeder has done this interview (audio, mp3 file) at The Wall Street Shuffle about Warren Buffett and talking about the financial industry. Good interviewer, very insightful stuff. (note: I am looking forward to Alice’s next book about Morgan Stanley and others.)
Here are a few more recent blog entries,
From Alice Schroeder’s Bloomberg column “Gold Tells You U.S. Bubble Hasn’t Popped Yet“. Quote (see highlighted),
Our recent real-estate bubble wasn’t like tulip mania, in which the inflated asset had only a tenuous connection to the economy it came to dominate. The real-estate bubble swelled on the genuine beliefs among consumers about their future prospects and earnings. To be sure, some of those prospects and earnings were exaggerated to the point of fraud.
Thus the bubble burst when credit-card junkies had spent the last dollars they could justify, and the final peanut brain had been unearthed who could be persuaded to sign up for a negative-amortizing mortgage.
I am going to share with you some of my favourite text in my review of “The Snowball: Warren Buffett and the Business of Life” by Alice Schroeder. You see, when I read a good book I will underline the text, add notes in the margin, and sometimes dog-ear my books quite heavily and proudly (for a while, a photo of me holding Bill Buxton’s book was posted on Bill’s site).
So for this 960 Pages, 62 Chapters + Afterword biography about Warren, I will highlight some of my favourite text in each of the 62 Chapters + Afterword and then take a picture of the marked up pages. Enjoy.
NOTE: See bottom of this article to see additional notes, video ofAlice speaking at a conference, etc.
PART ONE / The Bubble
Chapter 1 – The Less Flattering Version
I don’t know many people who has the humility to tell their biographer, “Whenever my version is different from somebody else’s … use the less flattering version.”
(note: click on photo to see a large & clearly readable version of the text)
Chapter 2 – Sun Valley
I see, I finally know where did Warren first come up with his explanations using the automobiles and airplanes industries. He did it at Sun Valley and then later used them in his 2000 annual letter to shareholders. (If you are too cheap (big smile) to buy this book, download and read some of Warren annual letters to shareholders and gain some investment insights for free.)
Chapter 3 – Creatures of Habit
Wow, I know Warren reads a lot, but I have no idea that he reads this much. And he also read “… newsletters from writers he admired on the stock and bond market.” My friend, just think for a moment, Warren Buffett reading someone else insights on the stock and bond market. If this is not humble and willing to learn from others, I don’t know what is !!!
Chapter 4 – Warren, What’s Wrong?
Great insight, “The big question about how people behave is whether they’ve got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard. I always pose it this way. I say: ‘Lookit, Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover but have everyone think you’re the world’s greatest lover?’ Now, that’s an interesting question.”
PART TWO / The Inner Scorecard
Chapter 5 – The Urge to Preach
Now, can I get someone to work on me? (big smile)
Chapter 6 – The Bathtub Steeplechase
“But no matter what she [Warren’s mother] thought she was doing, by the time Warren was three years old and their sister Roberta, known as Bertie, was born, “it couldn’t bee put back together,” he says, for him or for Doris. The damage to their souls was done.”
This is the toughest and most insightful chapter for me to read about Warren as I had no idea the challenges that Warren and his sister Doris had to face when they were little. I cry too easily and I did cry when I read this chapter.
I hope when some readers read this section, they will take a moment to reflect upon their own actions towards their children and decide to change. It is never too late. The readers may start reading the book thinking they will get tips on how to get rich, but I hope they will allow what they’ve read/learned to help them grow and change. For the souls of ** your children ** are worth much much more than the money that one may wish to gain from reading the book.