Forty-two months! Thats how long I’ve been eagerly awaiting for Carol Loomis‘ new book “Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012: A Fortune Magazine Book” (368 pages, on sale Nov 26th and online amazon.com & indigo.ca). Carol is Fortune magazine senior editor-at-large and a long time (40+ years) close friend of Warren Buffett! I am thrilled to see Carol’s book published and in my hands as it feels like having an insightful person who knows Warren really well to guide me through some important and insightful articles. It will take me some time to read & review the book, please stay tune for my detailed review. Until then, my first impression of the book is it looks awesome!
Long time readers of Warren‘s news and insights will be familiar with some of key articles in this collection and also see many (for me) new articles that are important but less well known. Carol has added many insightful commentaries before the articles to give us context and share with us her views. For example, the article “The Inside Story of Warren Buffet” (April 11, 1988) is Fortune’s first profile of Warren and Carol’s preamble explains what lead her to finally wrote the first profile about Warren after knowing him for 20+ years at that point! And then the afterword for articles like “Buffett Hits $200 million Downdraft” (Nov 17, 1994) reminds readers that Warren actually made money on the USAir investment (which many people may have an impression of it being a money losing investment).
P.S. Now, let me explain my wait of almost forty-two months in this postscript. You see, in April 2009, shareholders of Warren Buffett‘s Berkshire Hathaway NOT physically presented at the annual shareholders’ meeting in Omaha were given opportunities to ask Warren & Charlie remotely in advance via email for the first time. And I jumped at the chance by emailing my question to Carol! Along with my question, I told Carol that,
“I am a big fan of your Fortune articles about Warren and BRK. (I have taken the time to look up some of your older articles and really enjoy reading them.)”
In Carol’s email reply was where I first read of the mention of a possible book (the book that I am finally holding in my hands)! So, yes, I’ve been eagerly awaiting the book since Apr 2009, and that is about forty-two months! :)
P.P.S. Sharp-eyed readers may have noticed there is a stack of five books in the above picture. Can you guess the titles of the Warren related books in the stack? Find out how many you guess correctly by clicking here to see this picture.
Warren Buffett: “I can end the deficit in five minutes.
You just pass a law that says that any time there’s a deficit of more than 3 percent of GDP, all sitting members of Congress are ineligible for re-election. Yeah. Yeah. Now you’ve got the incentives in the right place, right? So it’s capable of being done.
And they’re trying to use the incentive now we’re going to blow your brains out, America, you know, in terms of your— of your— in terms of your debt worthiness over time, and that’s being used as a threat. A more effective threat would be just to say if you guys can’t get it done, we’ll get some other guys to get it down.”
Check out NYT DealBook Live-Blogging of the Meeting. Highly recommended. I’ve excerpted a few sections related to David Sokol that is important to read (with emphasis added),
“12:50 p.m. Buffett’s message on compliance: Trust me
DealBook’s Andrew Ross Sorkin asks: Given what’s happened, why doesn’t Berkshire institute stricter controls for employees’ trades?
Buffett’s answer hinges on trust. The company lays out what he says are clear rules about what is and isn’t permitted. Berkshire isn’t an investment advisory firm, and it isn’t a mutual fund, he says, suggesting that it’s not obligated to have a big compliance department.
He also cites the expansiveness of Berkshire — some 260,000 employees — and how subsidiaries handle most of the issues with their workers.
To Buffett, his view appears to boil down to this. People determined to break the rules will do so, regardless of compliance policies. How can the company stop someone from trading in his cousin’s name?
“If there’s anything we can do in the rules that will make it even more explicit that rules are not made to be danced around … we want to make sure we do it,” he says.
Munger adds that having a big compliance department doesn’t necessarily preclude problems. Wall Street banks have armies of compliance officers and still suffer huge numbers of scandals. (His exact words were “the most scandals.”) [note: True but this means another scandal can happen.] Read the rest of this entry »
“¶You have said that Mr. Sokol did not do anything “unlawful.” But Mr. Sokol bought shares of Lubrizol a day after he told Citigroup to indicate Berkshire’s interest in buying the company.
Why don’t you consider that “material” information, a crucial component of insider trading? Do you not believe that a Lubrizol shareholder would have considered such information important to their investment decision? Clearly Lubrizol felt that Mr. Sokol’s inquiry was material enough to hold a board meeting on Jan. 6, one day before Mr. Sokol bought almost $10 million of shares.
If Mr. Sokol was aware of Lubrizol’s board meeting, would you consider that material information? And if a news outlet had reported Mr. Sokol’s inquiry or Lubrizol’s decision to meet, do you not think that the price of Lubrizol’s shares would have risen?
Here is another way to think about it: If a Citigroup banker had bought shares of Lubrizol at the same time as Mr. Sokol, would you have considered that insider trading? Isn’t that the definition of insider trading? What did Mr. Sokol do that was different?
¶Berkshire has always been a very decentralized institution with only 21 of its 257,000 employees working at headquarters and each subsidiary left to its own devices. “Most of these managers are happiest when they are left alone to run their businesses, and that is customarily just how we leave them,” you recently wrote in the annual letter.
This structure might seem like a bastion of efficiency. But given Mr. Sokol’s possible transgressions, do you now think Berkshire needs more compliance programs and people to manage them?“
P.S. I have never thought I would be tagging a post about Warren with “ethics” where I question if it is sadly missing.
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?)
“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. […]
Lottery Tickets
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 »
Paradoxically, the most damaging bit may be the second last paragraph, “I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release.” To me, this is in full prep mode to fight with lawyers (SEC lawyers, et al). A totally silence after issuing such an “unusual” statement is asking for serious headline news trouble! (see more excerpt at the end) I hope I am wrong here.
“Finally, Dave brought the idea for purchasing Lubrizol to me on eitherJanuary 14 or 15. Initially, I was unimpressed, but after his report of a January 25talk with its CEO, James Hambrick, I quickly warmed to the idea. Though the offer to purchase was entirely my decision, supported by Berkshire’s Board on March 13, it would not have occurred without Dave’s early efforts. Read the rest of this entry »
“Bombardier Inc (BBDb.TO) has agreed to sell as many as 120 aircraft to Warren Buffett’s NetJets Inc in a deal that could earn it more than $6.7 billion.
The deal, consisting of a firm order of 50 jets and options to purchase a further 70, is the largest business aircraft sale for Bombardier, the world’s No. 3 civil aircraft maker after Airbus (EAD.PA) and Boeing (BA.N).
While airlines still account for the majority of corporate travel, many businesses are gradually returning to private planes. They are eager to avoid airport hassles, flight delays and other potential logistical snags associated with commercial flying.”
In the current economic climate, I think it is nice for Bombardier to have this deal. At the same time, I bet NetJets is getting a pretty good deal for the jets too. Alice Schroeder, Buffett’s biographer, wrote about NetJets earlier this week here and here before this deal. It will be interesting to hear what she has to say on this deal.
P.S. Warren has previous experience in airlines related investments. Since we are talking about a lot more money here, I hope it works out better (much better) this time around.
“The agreement includes a firm order from NetJets for 50 Global business jets valued at a retail price of $2.8 billion, with options for an additional 70 Global aircraft. The firm order comprises 30 Global 5000 Vision and Global Express XRS Vision aircraft, with deliveries scheduled to begin in the fourth quarter of 2012, as well as 20 firm orders for Bombardier’s newly-launched Global 7000 and Global 8000 jets, with deliveries of these aircraft to begin in 2017. At a total retail price exceeding $6.7B, this is the largest aircraft purchase agreement in the history of private aviation. Additional terms of the deal were not disclosed.”
[Kempton: First of all, how could I missed “retail price“?! You must be kidding me that Warren Buffett or CEO of NetJets David Sokol would pay retail price during a recession for jets! Therefore someheavy discounting is probably happening here. And the option for additional 70 jets, probably cost nothing or just a token amount.]
The following are links to videos and transcripts of Warren Buffett having some fun on CNBC and, in a sense, putting up a big free TV ad to attract profitable businesses to sell to him.
“Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.“
“It goes without saying that historically, capital management has long been the single greatest creator of value at Berkshire. The company has been built from a series of capital transactions and asset/liability matching and capital allocation decisions over many years. Therefore it is not really surprising to see Buffett acknowledge this as the third pillar. Yet one could almost see Buffett salivating as he wrote that Berkshire is now generating $1 billion of free cash flow a month, a threshold it crossed this year. That’s an astounding figure. Wal-Mart, the world’s largest company, does not even come close to generating cash flows like this.
Buffett was speaking of free cash flows. In another part of the letter, he wrote about how happy he to be committing enormous amounts of capital to regulated businesses like BNSF and utilities. This is *not* coming out of the $1 billion! Berkshire will either be making acquisitions or buying securities to the tune of $1 billion or more a month for the foreseeable future. By way of comparison, the cash expended for the enormous BNSF acquisition took Berkshire about 16 months to accumulate (at today’s run rate). Imagine Berkshire buying the equivalent of more than two BNSFs every three years.”
““He’s [Todd Combs] got the best chance of being the successor, but if we find the right guy or gal, we’d take that person, too,” he said, adding that the matter hasn’t been decided.
Mr. Buffett also told The Times that Li Lu, a Chinese hedge fund manager considered one of the other top candidates, has decided to stay in his fund.“
“My first question, as I sit there on the couch in his office, is: “What about gold? Is this a classic bubble or what?”
“Look,” he says, with his usual confident laugh. “You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what that’s worth at current gold prices, you could buy all — not some — all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”
P.S. Note to Fortune editors: Why don’t you link to those magazine articles from the covers? Isn’t it an obvious great way to sell some more eyeballs and ads?
P.P.S. This one is too funny considering the baby BRK and the the 1 to 50 split of the baby shares!
P.S. On a personal note, Ms. Brooksley Born has earned my deep admiration in the last months as I learned the foresight she had and the way she had conducted herself.
Alice Schroeder, the insightful and independent biographer of Warren Buffett’s “The Snowball“, posted three interesting entries in her blog in the last few days.
“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.“)
and
“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.“).
and
“First of Many” – Some of Alice’s key takeaways from the Berkshire AGM.
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