Paulson vs. Buffett 56 comments
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By James Kwak
Bloomberg has a new story out comparing the investment terms achieved by TARP with those achieved by Warren Buffett when he invested $5 billion in Goldman (GS) back in September. The results aren’t pretty for the U.S. taxpayer: The government received warrants worth $13.8 billion in connection with its 25 largest equity injections; under the terms Buffett got from Goldman, those warrants would be worth $130.8 billion. (The calculations were done using the Black-Scholes option pricing formula, which has its critics, but which I think is still a good way of estimating the relative difference between similar options.) That’s on top of the fact that TARP is getting a lower interest rate (5%) on its preferred stock investments than is Buffett (10%), which costs taxpayers $48 billion in aggregate over 5 years, according to Bloomberg.
The difference in the value of the warrants themselves is due to two factors: (1) Treasury got warrants for a much smaller percentage of the initial investment amount; and (2) those warrants are at a higher strike price - the average price over the 20 days prior to investment, while Buffett got a discount to market price on the date of investment.
The comparison isn’t a new one - we recommended that TARP emulate Buffett back in October - but Bloomberg’s analysis has put the performance gap in striking perspective. Simon has a quote in the article, using the word “egregious,” but the really harsh words came from Nobel prize-winner economist Joseph Stiglitz, who said, “Paulson said he had to make it attractive to banks, which is code for ‘I’m going to give money away,’” and “If Paulson was still an employee of Goldman Sachs and he’d done this deal, he would have been fired.”
Now, to be fair, there are some plausible defenses of TARP. One is that on that fateful October day when Henry Paulson summoned the CEOs of nine major banks to Washington, he needed all of them to accept the deal on the spot, so the terms could not be too punitive. While that may be the case, it doesn’t explain why bailouts since then have to be equally generous (since the program is optional, after all) - culminating in the GMAC bailout, where the “warrant” is just the option for the government to lend $250 million more at a slightly higher interest rate.
Another defense I have heard is that the plan needed to leave the banks in a situation where they could attract private capital. I have only limited sympathy for this defense, because it’s not as if private equity funds are lining up to invest in Citigroup (or any other major bank), even after two rounds of generous bailouts. Finally, there is the oft-repeated mantra that the country doesn’t want the government to nationalize banks, and larger warrants would lead to effective government ownership. Here, I think that the clever minds in Washington could come up with a trust-like structure to shield day-to-day operations from too much government meddling (some oversight is arguably a good thing anyway), and a concrete plan for divesting those ownership stakes would go a long way to defusing any worries about creeping socialism.
On balance, I think it’s hard to argue that TARP needed to be as generous to banks and their shareholders as it has been. Broadly speaking, TARP recipients have fallen into two categories: those who didn’t need the capital but took it because the terms were good, and those who really needed it (like GMAC). If the terms were tougher, the former might not have taken them, but that would be fine; the latter still would have taken the money, because the government was the only place they could get it.
So the question remains: Why did Henry Paulson, former CEO of the most respected investment bank on the planet, strike such bad deals for the American taxpayer? I don’t know the man, but I strongly doubt that it was because of any conscious desire to enrich his colleagues. More likely, I suspect it was an unconcious product of the conventional wisdom, so strongly rooted these last twenty years, that government involvement is bad and should be minimized at all costs - even to the point of avoiding any possibility that the taxpayer might make money in dealings with private-company shareholders.
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This article has 56 comments:
I would not be surprised, as his many "sweet deals" ,like this Goldman one, over the years surely bear closer scrutiny than they have ever gotten. But, he is much smarter than gov't regulators and surely would never get caught, as much for nobody ever going after him as it is for being smarter. Some people are more immune than the President, it seems, as long as they are icons.
The most egregious thing to me about Buffett's role through all of this is that he very aggressively advocated in favor of TARP. Moreover, he waived off concerns about it being unbeneficial to the taxpayers because 'you can't get everything perfect' and it's 'more important to save the system than worry about the details'.
That might not have been such a big deal had he been your every day average Joe with no vested interest in banks and financial institutions, but the fact of the matter is that Buffett was arguably the single biggest financial beneficiary of TARP. In essence, the taxpayers are subsidizing Buffett's investments that went sour.
I don't necessarily think Buffett is a bad guy --- I guess he was just looking out for his self-interest, but it's difficult for me not to notice that he has more than enough for himself while the average middle income American is struggling. I wish people simply quit looking at him as if he's some infallible beacon of wisdom looking out for all of us when in actuality, his advocacy during this crisis has mostly been about his own self-interests.
He is as big a liar as his boss was about weapons of mass destruction leading to the never ending war.
We believe him because he is what? Can you clear that up for me again?
American people have got to be smarter than this and quit buying all the swamp land they try to sell us. There is no reason to compare him to Buffet because he could not even wear the man's shoes. He is the reason for the problem by changing long standing laws that prevented banks from owning other investment vehicles (Citibank and Travellers ring any bells).
It will come out in the end but it will be too late to do anything about it and he will be living in a life of luxury somewhere while others try to survive.
Seriously wrong!!
He is the guy who wants a good deal and US government wants to save the economy it doesn't care about your money, it is not from the pockets of super rich, it is you buying junk to get deeper in debt and people like Buffett making money.
With regard to Buffett, Goldman had to agree to terms favorable enough to motivate Buffett to agree.
Paulson, on the other hand, could not walk away from the table. He wasn’t acting as a private (individual or corporate) entity free to do what he believes (rightly or wrongly) will maximize his financial situation. He was a representative of the U.S. government responsible for pursuing a public agenda which put economic-financial optimization on the back burner and focused on cooling an atmosphere of panic and achieving some measure of stability.
All this discussion assumes, of curse, that Buffett got the better deal. Actually, it may be years before we can know that. We still don’t know what Goldman’s future will hold and what Buffett’s return on the warrants ultimately will be. On the other hand, we are starting to see some very preliminary indications that Paulson may have achieved his goals. That may not be so under the criteria we use to evaluate private investments, but in terms of Paulson’s public criteria, let’s face it; the financial system seems to have achieved some level of stability. We’re certainly not yet out of the woods, but the pre-bailout atmosphere of panic we saw has eased to the point where things today are probably a heck of a lot better than they might have been had Paulson walked out of the room.
Clearly, one who cannot leave the table is not in a position to drive a hard bargain. But that doesn’t change the situation Paulson faced. The big issue is what Paulson was in such a weak bargaining position. It’s not my intention to open a major debate here re: political philosophy, but it does seem that one election day, the voters may have expressed their views about the pro-business regulatory climate of the past generation. Whether this thought is sound or nonsense is, however, irrelevant to Paulson. He had to react to the immediate situation he faced and let the analysis come later. And that’s what he did.
As far as whining about the gov't TARP deal - listen up - the Government has a vested interest in not seeing these firms collapse, i.e. more massive economic disaster. If the Government was being a scumbag vulture like Warren and held the firms feet to the fire it is more likely they might still fail and then the Government pays for it anyway with massive unemployment and other benefits when the worked goes belly up. Get some perspective - the Government gets paid a lot by not having to pay to fix a more broken system and Warren is a double dealing hypocrite.
Agreed. He screwed the pooch and the American taxpayer in one fell swoop! He managed the greatest transfer of wealth in modern history. That is saying allot as the nearest 2nd place is divorce. But, I digress.
Was it Socrates who said, "The unexamined life is not worth living"? That's a bit harsh, but he certainly had a point.
We ought to look more deeply into matters that affect us to such a core level and always consider alternative theories. Not knowing that there are alternative theories--such as the Austrian school of economics or the Chinese approach to medicine (or whatever) can lead to less good outcomes for us.
Lets see - the Loser of Omaha picked Goldman at about $116, picked GE at $21.50 and a whole bunch of other crap he is under water in and this is not even talking about all the economically sensitive businesses he owns outright that are never in his reports or financial disclosures. Oh yeah - how about the $30 billion Put he sold on the market at Dow 13,000? Warren is getting his ass severely kicked and he most likely will die before he ever gets even again.
Bye bye Warren - and shut up!
On Jan 09 12:04 PM fatcat wrote:
> Buffett has been mighty silent for the last few months...before that,you
> couldn't turn on the TV or the computer without seeing him...
The next Treasury head is a Federal Reserve guy.
You can write long articles trying to justify the nuances and what if scenarios all day long. But at the end of the day banks (and Buffett) are just for-profit corporations with the altruistic motivations of sharks.
The whole concept that a nation's economy is better served when franchised out to the banking industry is not compatible with reality. Only constant inflation masks this flaw in the system, allowing interest to be paid at the expense of savings. However the debt increases year over year anyway.
It has taken many years for the layers of debt at national, state, company and individual levels to hit this crisis point. However, there is no reason to expect things to change at all if one understands the nature of the debt spiral that is our economic model.
Banks and their supporters will do anything to preserve this system because it has made them very rich, not because it is a good system.
And to the people saying he's only looking out for his own wealth, your way off base. He's a company's Investment officer so he has to do whats best for his shareholders. His own personal wealth doesn't mean anything because he's giving it all away. He stated his entire personal wealth will go to charitable foundations when he dies. He's not even giving it to his children. If that isn't philanthropy I don't know what is.
If you have a time machine go back and invest with warren. hind sight is 20/20. If I go back I am buying Microsoft as that too has outperformed Warren over 20 years.
Also, Simon - hedge fund manager of Renaissance Capital has been clocking well above Warren for 15 to 20 years now using computer algorithmic trading. The guy averages north of 30% a year, year in and year out, doing exactly what Warren (the man, the myth, the marketer) says cannot be done.
Warren is a marketing machine but I have been trading on wall street for 15 years now and I see through it.
So I found one - Jim Simons - look him up - beats Warren on a bad day. How many more do you want me to find?
Buffet is betting his reputation . Paulson couldn't care less after he steps down from the Treasury. Paulson is spending money that isn't his. Buffet has skin in the game.
You can't even compare the two.
Warren can walk around all day like he don't stink but when I hear him all over the television talking about how my taxes need to go up and he talks out one side of his face and does the other (a)transparency? ha! 60% of Berkshire is obtuse and off balance sheet reporting, b) don't play in what you don't know? how did Warren do in currencies last year or how about the put he sold at Dow 13,000 he is billions under water on already, c) don't use leverage? Berkshire is using a ton of leverage). These are the gems of advice he gives the individual investor while he does the exact opposite and pontificates to the rest of us. You want to admire someone who has created a ton of value and been the biggest philanthropist in history stick with Bill Gates - at least he is not a hypocrite.
So, he loans Dow money - converts pay interest too - and gets a bid for Rohm and Haas many in the market thought was too high. Did he buy more ROH in anticipation of approaching Dow? This needs and SEC investigation. This sounds like a conflict of interest to me! It almost sounds like money laundering and extortion!
So he loaned the money instead of buying Dow common stock. If he had bought common the Dow drop after the buy out would have offset the ROH jump. Nooooooo - Warren gets converts and debt from Dow so he gets that money back from the company and then the money is used to buy out another position he has at a massive premium.
Basically he was trying to screw the rest of the Dow shareholders for his own gain. No one else gets deals like this and no one questions the Lord Buffett but he did a similar deal like this with USG in 2006 - double dealing and playing both sides of the table. I would get investigated, you would get investigated, but a billionaire that contributes to political campaigns and he himself runs his own marketing campaign gets off.
Seriously, that DOW-ROH deal was as self serving and double dealing as it gets. Where is the investigation?
If you can't walk away from the deal, you have no leverage to get top dollar.
You are also correct that time will tell on both accounts how Buffet does as well as the US tax payer.
Give Buffet's track record in 1974
mast-economy.blogspot....
and how that paid out significantly in 75 and beyond, I'd bet that both Buffet and the US Treasury does just fine.
Just because we didn't get the absolute best deal doesn't mean this is Paulson vs Buffet... I'd rather say Paulson and Buffet both did well.
Judging from the 1975 stock chart:
mast-economy.blogspot.... next year at this time we'll all be happy for the stake we have as taxpayers.
GNE
Well, this question remains in my mind: "Since when did the government become a for-profit organization?"
Government at its best is invisible (low taxes, minimal intrusion) while providing security (military and bailouts). It's at its worst when it monopolizes industries and claims all private property for "the good of the people".
Those deals are not meant to derive profits as it was for Buffett - they were meant to keep banks solvent. For the government to profit at the expense of banks would be counterproductive.
On Jan 09 03:53 PM Ricard wrote:
> "So the question remains: Why did Henry Paulson, former CEO of the
> most respected investment bank on the planet, strike such bad deals
> for the American taxpayer"
>
> Well, this question remains in my mind: "Since when did the government
> become a for-profit organization?"
>
> Government at its best is invisible (low taxes, minimal intrusion)
> while providing security (military and bailouts). It's at its worst
> when it monopolizes industries and claims all private property for
> "the good of the people".
>
> Those deals are not meant to derive profits as it was for Buffett
> - they were meant to keep banks solvent. For the government to profit
> at the expense of banks would be counterproductive.
>
>
"Lets see - the Loser of Omaha picked Goldman at about $116, picked GE at $21.50 "
Absolutely false. Buffett has the OPTION of taking GS and GE at these prices - these options were FREE. If you say they came with a cost, sure - they came with the opportunity to earn 10% off $10 billion - that's $1 billion a year in profit, just as long as these companies stay solvent.
I would take the opportunity to earn 10% on my money anytime. To be given free options as well? Priceless.
"Bye bye Warren - and shut up!"
Robert, perhaps you need shut up now.
I bet you that the value of those preferred shares have dropped A LOT MORE THAN 10% and he has not even collected one payment yet. the common is down 28% and was down over 50% at one time and this downside ride is not over yet son.
Know what you are talking about first - it was not straight debt. Do you know what preferred is? It loses money and trades. If you buy a bond that pays 10% and the next day the bond is trading at 50 cents on the dollar its worth a whole lot less. Ever hear of the CMO debt crisis?
get your facts straight.
about 10 cents or less. Lets just call it $0.
1. How does the Berkshire/Dow/Rohn & Haas deal differ from an owner financed mortgage or an owner financed seconf mortgage? Do you believe these are illegal deals?
2. Buffett has had worse periods of performance in the past. From June, 1998 BRK-A went from 79,000 to March, 2000 at 40,800. That is a drop of more than 48%. I have not been able to recover the data,but I believe he also had similar large losses in the 1972-1974 time frame. The current cycle has not (YET) had such a large loss. This type of cyclical loss is to be expected from his investment style and when it occurs it does not necessarily mean the end is near (for Buffett).
3. Buffett's compensation plan is close to what I consider ideal. He receives a salary of $150,000 annually and the bulk of his compensation is based on the long term performance of his stock holdings. He gets no annual performance bonuses. If all executives had comparable compensation plans, many of the disasters we have seen over the past decade would not have occurred. (Dividendmachine has commented on this.)
Disclosure: I do not own any BRK, have never owned any BRK and have not recommended BRK to others. The primary reason for this is for that type of company profile I prefer stocks with dividends.
This invariably hurt the current DOW shareholders a lot more than it hurt Warren as he made out on the back end and did not even take common anyway.
2) If this market does not recover the 14,000 level in 3 years that $30 billion put will make it extremely unlikely Warren gets even on all the positions he has now. remember, he is getting up there in age. Not saying I want the guy to die but I am thinking he is down a whole lot now and does not have the time to ride it out. If he dies what happens to the stock? Does it take a hit? Probably - so factor that into the $30 billion put, the $70 billion in lost BRK market cap and he is a bit behind the 8-ball with only a few years left. Remember, he is Mr. Slow and Steady and not a fast money high profit trader.
3) That ownership in the company is almost exactly like options - its equity once executed - same thing.
You talk a lot of sh*t without really saying anything. Buffet is a hard nosed business man that only make investments that he believes will be profitable. If he loaned money to Dow to take out his ROH, then all he did was to continue to be invested in a bigger combined company and he moved up the capital structure. Sounds like a smart move.
I traded preferred and corporate debt for a living. Some issues are 100% snapped up - usually by insurance companies - and sooner or later they come out to the market and trade - and many times they trade far off the issuance price depending on the relative condition of the company.
Something is only worth as much as someone will pay for it and the creditworthiness of the borrower has as an input the equity to debt ratio but also the price of the stock is a reflection of future cash flows as calculated by the market mechanism - stock dropping indicates less earnings expected, less earnings means lower debt service coverage ratio, etc... Hopefully you can finish this yourself.
I am exactly right. It does not need to trade to have a value. If he bought a perpetuity it still would have a value based on the present value of all the future debt payments which would change with interest rate fluctuations, but in the end something is only worth what someone else is willing to pay for it.
You people need to stop that 10% talk. the value of his preferred got chopped up. Does he mark to market or he gets a pass on that too? If he tried to sell it right now what would he get? A LOT LESS.
You want to invest in Goldman at $116 now? I will sell it to you. The preferred will drop less than the % the common has dropped as it has a coupon BUT the corpus has taken a hit. Its a fact.
What do you do for a living? Are you a market professional with actual experience on a Pro trading desk? Do you know investment valuation and corporate finance? I know fundamental valuation - the Buffet approach, am licensed in it and do use it. I also know warren gets a free pass and into some shady deals - if he does it it's smart. If I engineered me getting taken out of a position it would be market manipulation.
The dow common holders got screwed by Buffet.
Now - the same 10% today at these lower stock levels makes more sense to me. But then again - the rest of us never get to engineer our own position exits by proxy or sit down with Goldman and get the sweet deal. Kinda what I am saying - he is telling us how to invest while he runs with a whole different set of rules.
No thanx warren - practice what you preach because the rest of us do not get a 7% bump everytime we announce we just bought a stock, sweetheart 10% deal or the ability to use someone else's money to get a huge premium bid for another of our holdings.
"I wonder if [Buffett] still has that $1 million challenge for trading hedge funds that are supposedly inferior to his supreme stock picking."
That was never the challenge - it was simply to beat the S&P 500. A million dollars to the winner's charity from the loser.
"I have a friend running a fast money hedge fund up 41% this year and he would be glad to take Warren's bet."
Not likely. Not too many fund managers want to risk $1M for no chance of return.
"Lets see - the Loser of Omaha picked Goldman at about $116, picked GE at $21.50 and a whole bunch of other crap he is under water in..."
Your ignorance is daunting. BRK's investments in GS and GE preferred shares will pay BRK 10% per year until the companies decide to retire them - at a 10% premium. So the shares are worth 10% more than what they were purchased for. If the shares regain their lost value in the next five years, BRK can buy common shares for about the prices you mention. If not, then the investments' returns could be as little as 10% per year. Let's see - 10% minimum return, potentially unlimited upside. Gee, what a horrendous deal.
"and this is not even talking about all the economically sensitive businesses he owns outright that are never in his reports or financial disclosures."
Huh? Buffett doesn't own any businesses. He is the largest shareholder in Berkshire Hathaway, which, as a publicly traded company, discloses the performance of ALL of its holdings (such as See's Candies, Dairy Queen, and GEICO) in its SEC reports.
"Oh yeah - how about the $30 billion Put he sold on the market at Dow 13,000?"
Not worried. Those puts don't mature for many years, have no reserve requirements, and meanwhile the premiums are being invested in things like GS and GE preferred.
"Warren is getting his ass severely kicked and he most likely will die before he ever gets even again."
Gets even with what? BRK was down 32% last year. That's a really bad year, until you consider the S&P 500 was down 37%.
to be continued...
there are many of the smaller businesses Berkshire owns and Buffet by proxy of Berkshire ownership that never have their numbers detailed in quarterly results - the numbers are combined. Now you are arguing semantics.
Good thing he sold that put in the fall and reinvested it in stocks so he could buy the top - but money is fungible - that is semantics as well.
So now its all about down relative? When Warren and anyone at Berkshire - and anyone that may have bought the stock at $140,000 looks at the position THEY ARE DOWN IN IT! YOU WANT TO TELL ME THAT LOSING LESS IS NOT LOSING AT ALL?
Almost everything Warren bought in 2008 is LOWER. That means DOWN - LOSING MONEY, UNDER WATER, etc...
Guess what - I MADE MONEY in 2008. That's a little better than the S&P being down 37% too. Ya think?
I know what preferred is. I question whether or not you do, or whether or not you even realize the lack of cohesion in your statements. There's not very much difference between preferred and debt - they both come with a coupon, and are generally not allowed to participate in profit like the common. Preferred has a lower seniority, but that is not at all what you are ranting about. The warrants were thrown in as an incentive to take the preferred in the first place. The preferred are face value with a 10% coupon. No one is talking about selling them or buying them on the market. The only real issue with those preferred are whether or not the companies can consistently make the dividend payments. If they can, it's a 10% ROI. If they can't, then Warren Buffett's performance will be the least of our worries. The timing of the deal suggests that Buffett was acting alone as the J.P. Morgan of our time - a private consortium bailing out what was left of Wall Street. The fact that the deal was pretty good too makes it look all the better.
Those options have a price, yes. Let's say per share of GS, they're worth one nickel. $5 bil worth of them when GS was 120 = around 40 million shares. At one nickel per share, or $5 per contract, that's worth about $2 million. He got those for free mind you, and at the lowest price possible, they're worth about two million dollars. Those options have a 5 year contract, longer than any LEAPS out there. GS leaps with a strike of $115 Jan 2011 are trading around $15 right now. $15 x 40 million shares = $600 million. Add another 3 years of time value, and those options, which were again free, are easily priced at well over $1 billion, if they were tradable. Please, get YOUR facts straight.
One last thing. I'll concede you're right in the short term, with a rear-view mirror. In that sense, you'll always be right. Something makes me suspect that you are much, much less successful with your investments.
I'll leave it at that...I don't want to encourage you any more than necessary.
On Jan 09 04:18 PM Robert Perrego wrote:
> he bought warrants and preferred stock and they trade as well. they
> have dropped significantly in value as the common has dropped,<br/>
>
> I bet you that the value of those preferred shares have dropped A
> LOT MORE THAN 10% and he has not even collected one payment yet.
> the common is down 28% and was down over 50% at one time and this
> downside ride is not over yet son.
>
> Know what you are talking about first - it was not straight debt.
> Do you know what preferred is? It loses money and trades. If you
> buy a bond that pays 10% and the next day the bond is trading at
> 50 cents on the dollar its worth a whole lot less. Ever hear of
> the CMO debt crisis?
>
> get your facts straight.
1) I don't think Paulson did that bad a job as per his directives which are a lot different than Buffet's. government is not here to make a profit - it is here to keep an orderly society functioning.
2) Buffet gets deals we never get and good for him - if you got a club use it. But I don't like that he preaches to us how to invest when he does not invest that way and even puts down trading when investing is merely a subset of trading with a different time frame and causes and effects.
3) I don't think Buffet will get even on where he was prior to this mess before he dies. All the buy and hold value people have got smoked - Jim Miller, Eddie Lampert, etc... And when Buffet crows that trading is inferior to buy and hold - well maybe he can look at 2008 and see that saying that was a bit short sighted and the ability to go short in a down market is quite valuable. There are many ways to make money in the market - as long as you are good at your way you should do ok. Warren is back to about 1998 levels and slow and steady may take years to recoup that. this is not that i want the guy to croak - just that's what I think. That's what we do here - try to predict events.
So keep arguing semantics and all and miss the point.
Do you dispute Buffet preaches one way to invest meanwhile he gets deals no one else can? That is a bit hypocritical especially when he violates his own 'rules' and he tells us we should follow his doctrine. No thanx - I do just fine trading.
On Jan 09 06:20 PM Robert Perrego wrote:
> Hey Ricard - I thought you were right about your Paulson comment
> but man do the Buffet groupies get testy.
>
> Do you dispute Buffet preaches one way to invest meanwhile he gets
> deals no one else can? That is a bit hypocritical especially when
> he violates his own 'rules' and he tells us we should follow his
> doctrine. No thanx - I do just fine trading.
You would have influenced many more readers to think and have gotten a much more meaningful comment stream response if you had only said what you did in the comment four comments above that starts: "Before everyone gets to worked up and crazy here I made 3 underlying points..."
You had some significant points to make and your summary makes them. All the other comments distract more than they help your case.
Semantics got me sidetracked. I do believe Goldman will not trade north of 116 for a very very long time mostly due to their de-leveraging down to 11x as per banking regulations. Leverage blows profits sky high and down at 11x they will not see their stock go north - one exception - they gain a lot of market share with the demise of other b/d's. There is opportunity in that space which makes me that much more keen to watch Raymond James and their smaller cap brethren who did not get wiped out in the CMO and CDS mess.
If I were warren I would sell those warrants to anyone that would give me near the money Ricard seems to think they are worth. I believe them worthless.
The whole sea change on wall street has wiped out many business lines for the b/d's so they need to re-invent themselves and this will take time and right now the market does not seem to want to assign a higher P/E to b/d's.
As far as warren goes - I just get irked by him pontificating what everyone else should do while he has many built in advantages and runs his marketing/image machine and makes good money by reputation alone - he did earn it but don't tell me your method is better than mine while comparing apples to oranges. I started day-trading in 1998 at a pro shop and moved over 200,000 shares a day some days. I put up $10,000 and had taken well over $1 million out of the market by 2004. That is a pretty solid return and now I position trade my money while pursuing other endeavors and turned a measly 4.2 percentage points profit in 2008 - which is better than getting smoked for 30+ percent I guess.
That GLD trade I posted here put me over the top - and I bought calls and the ETF - leveraged and as they say - gold itself pays no dividends, has no fundamentals in and of itself and is not a value play.
But it worked.
BTW, I don't own BRKA, and neither am I interested in buying, even if it dips precipitously. It's rather expensive right now based on Graham's principles, probably because of the Buffett premium as you note, and Buffett himself does not have many years left. Now do I go out and show the level of discourtesy towards Buffett that you have shown? You could have been talking about your sick cousin in New York, and I still would have thought less of you, given how much of a tirade you displayed. It was your manner that was offensive, much more than the facts or point of view you displayed.
Lastly, people laughed hard at Buffett throughout 1999, called him outdated, and a relic left for the history books, sometimes with even less civility than what you displayed. They were right on one thing - he made more history from 2000-2002.
Again, good luck with your trading.
On Jan 09 06:45 PM John Lounsbury wrote:
> Robert Perrego - - -
>
> You would have influenced many more readers to think and have gotten
> a much more meaningful comment stream response if you had only said
> what you did in the comment four comments above that starts: "Before
> everyone gets to worked up and crazy here I made 3 underlying points..."
>
>
> You had some significant points to make and your summary makes them.
> All the other comments distract more than they help your case.
>
"[T]here are probably 100 companies that have outperformed Berkshire over the past 10 years. Berkshire is up 22% in Ten years..."
First off, you're wrong about the number. According to Yahoo, BRK-A closed at $65,300 on January 8, 1999. This might be difficult math for you, but $94,750 is 45% higher than $65,300. Let's shift it to full calendar years for convenience. For December 31, 1998 to December 31, 2008, BRK Now, that's still a lousy 3.8% annual return. But when compared to the S&P 500, which averaged -1.4% including dividends, it's not so bad, is it? Beating the market at an annual clip of 5.27%?
"...you will find a LOT of stocks that have outperformed Berkshire by a big margin."
Sure. But since we're being arbitrary about the timeframe, how about we make it a 9-year history instead of 10? For the last 9 calendar years, BRK's averaged a 3.3% gain, against the market's -3.2% total annual return. Buffett wins by 6.7% per year. Sure, there will always be those that beat BRK. But over time, he's been better than just about everybody.
"you looking to make money or fawn over the past? Here and now is what pays."
Then why are you bringing up the 10-year period?
“[in the last 10 years] DOW is off under 10% while Berkshire is off over 20%.”
You know, you really should do some research and give things some thought before you go making assertions. First off, you should reinvest the dividends if you’re comparing a dividend-paying company with a non-dividend payer. Apples to apples, you know. Secondly, your numbers are very, very wrong. According to Yahoo, 10 years ago DOW’s price was 95.06 – it’s since split 3-for-1. Assuming a 15% tax on dividends (which is low for the first few years), reinvesting all of the dividends for the last ten years would have turned one share into 3.35 shares. So $95.06 invested in DOW at the close on 1/8/99 would be worth $53.80 today – a decline of 44.3%. BRK was $65,300 on 1/8/99, and closed at $94,750 today. A gain of 45%.
Oops.
Since sometimes you say only the present matters, let's compare BRK against DOW for the last year: BRK – down 27.3%; DOW – down 54.4%.
Oops.
“Warren is a marketing machine…”
“A marketing machine”? Have you ever seen a BRK annual report? On the outside it looks like a high school literary magazine.
“…but I have been trading on wall street for 15 years now and I see through it.”
You trade on Wall Street and got DOW that wrong?
“So I found one - Jim Simons - look him up - beats Warren on a bad day. How many more do you want me to find?”
Don’t care. You found the BEST one. It’s downhill from there. Oh yeah – and you can’t hire Simons to manage your money. You can buy BRK-B in increments just over $3K.
Gee, I hope I got all my numbers right. It’s embarrassing to be very wrong, isn’t it?
DISCLOSURE: Long BRK.
Note that I took money out every year to live off and enjoy which lowers the capital base from which to compute the return and my 'dividends' were not reinvested. I don't have the exact numbers each year, just money out over the time span. As a pro daytrader I was leveraged each day to an extremely high level but money still kept coming out of the market.
100x initial investment over 10 years (even though was above). What does that compute to?
On Jan 09 09:18 PM Ricard wrote:
> I think the key is to show some respect for people with a proven
> track record. There isn't much reason to go out and ruthlessly trash
> someone's reputation just because they earned it. Perhaps one day
> you will earn yours, Robert, but it took Buffett more than 40 years
> to earn that 20% average yoy return. You have 39 more to go. Remember
> this day too, because if you do earn it, you'll have people like
> you to deal with in the future. I hope you are more civil then.
>
>
> BTW, I don't own BRKA, and neither am I interested in buying, even
> if it dips precipitously. It's rather expensive right now based
> on Graham's principles, probably because of the Buffett premium as
> you note, and Buffett himself does not have many years left. Now
> do I go out and show the level of discourtesy towards Buffett that
> you have shown? You could have been talking about your sick cousin
> in New York, and I still would have thought less of you, given how
> much of a tirade you displayed. It was your manner that was offensive,
> much more than the facts or point of view you displayed.
>
> Lastly, people laughed hard at Buffett throughout 1999, called him
> outdated, and a relic left for the history books, sometimes with
> even less civility than what you displayed. They were right on one
> thing - he made more history from 2000-2002.
>
> Again, good luck with your trading.
There is a whole new subject to debate in here concerning the speed at which technologies change and new industries and companies eat at old companies profits in here with a much different and shorter cycle market. Even Google - a relatively new company, is now treading into traditionally profitable areas of Microsoft and eating their lunch - and this is Microsoft, one of the greatest success stories and best technologies in history. This fundamental change in the market and nature of companies could make buy and hold even less effective and more irrelevant in the future.
Warren's marketing machine - I don't care about his annual report cover and was never referencing that. I am talking about the fact that he routinely gets on TV saying trading is inferior and he has even cited the short term hedge fund traders as a problem in the market while the hedge funds that employ that very technique sidestepped this latest calamity almost completely and based on 10 year returns dominate warrens returns by as much as a factor of 10.
All the stories you hear about hedge funds going belly up? Most of those were funds that were in the CDS market and leveraged debt trading to enhance other returns and investments. The hedge funds that were NOT buy and hold or more private equity type strategies and were faster money MADE money short. Many had poor performance through April and May but then cleaned up on the volatility in July, August, September and October on the short side and posted positive returns in 2008 (or at least not crippling returns that destroyed years of positive returns) when combined with years of earlier returns outdistance Warren dramatically.
I know many of these hedge funds and their traders and they have been at it since 2001 and 2002 and some from the mid nineties. I know many day traders that have been beating warrens buy an hold since 1998.
So do these traders and managers get on TV telling you buy and hold is inferior? Criticize Warren?
No - because when you do you get a whole lot of people like you that knee jerk argue and its not worth it. For example see how many people got all fired up here?
More to the point - warren has influenced many people to buy and hold through this latest mess while dumping that philosophy when technical charts broke down in April, May and June would not have their portfolios at levels from years earlier. You lose 50% and that means you have to return 100% to get your money back. Rule #1 in trading - don't lose first, control your losses. Buy and hold is, by nature, in opposition to that rule.
His following has increased and been greatly hurt by his 'marketing machine' which is intended to boost the performance and stature of BRK and his method while a trading and shorter term strategy has greatly outperformed him over the last 10 years owing in most part to the recent market calamity.
The individual investor that clung to their 'value' stocks over the past year are far under-performing those that listened to the market and traded it over the past decade.
On Jan 10 12:47 AM BS Detector wrote:
> Robert Perrego BS, Part 2:
>
> "[T]here are probably 100 companies that have outperformed Berkshire
> over the past 10 years. Berkshire is up 22% in Ten years..."
>
> First off, you're wrong about the number. According to Yahoo, BRK-A
> closed at $65,300 on January 8, 1999. This might be difficult math
> for you, but $94,750 is 45% higher than $65,300. Let's shift it
> to full calendar years for convenience. For December 31, 1998 to
> December 31, 2008, BRK Now, that's still a lousy 3.8% annual return.
> But when compared to the S&P 500, which averaged -1.4% including
> dividends, it's not so bad, is it? Beating the market at an annual
> clip of 5.27%?
>
> "...you will find a LOT of stocks that have outperformed Berkshire
> by a big margin."
>
> Sure. But since we're being arbitrary about the timeframe, how about
> we make it a 9-year history instead of 10? For the last 9 calendar
> years, BRK's averaged a 3.3% gain, against the market's -3.2% total
> annual return. Buffett wins by 6.7% per year. Sure, there will
> always be those that beat BRK. But over time, he's been better than
> just about everybody.
>
> "you looking to make money or fawn over the past? Here and now is
> what pays."
>
> Then why are you bringing up the 10-year period?
>
> “[in the last 10 years] DOW is off under 10% while Berkshire is off
> over 20%.”
>
> You know, you really should do some research and give things some
> thought before you go making assertions. First off, you should reinvest
> the dividends if you’re comparing a dividend-paying company with
> a non-dividend payer. Apples to apples, you know. Secondly, your
> numbers are very, very wrong. According to Yahoo, 10 years ago DOW’s
> price was 95.06 – it’s since split 3-for-1. Assuming a 15% tax on
> dividends (which is low for the first few years), reinvesting all
> of the dividends for the last ten years would have turned one share
> into 3.35 shares. So $95.06 invested in DOW at the close on 1/8/99
> would be worth $53.80 today – a decline of 44.3%. BRK was $65,300
> on 1/8/99, and closed at $94,750 today. A gain of 45%.
>
> Oops.
>
> Since sometimes you say only the present matters, let's compare BRK
> against DOW for the last year: BRK – down 27.3%; DOW – down 54.4%.
>
>
> Oops.
>
> “Warren is a marketing machine…”
>
> “A marketing machine”? Have you ever seen a BRK annual report?
> On the outside it looks like a high school literary magazine. <br/>
>
> “…but I have been trading on wall street for 15 years now and I see
> through it.”
>
> You trade on Wall Street and got DOW that wrong?
>
> “So I found one - Jim Simons - look him up - beats Warren on a bad
> day. How many more do you want me to find?”
>
> Don’t care. You found the BEST one. It’s downhill from there.
> Oh yeah – and you can’t hire Simons to manage your money. You can
> buy BRK-B in increments just over $3K.
>
> Gee, I hope I got all my numbers right. It’s embarrassing to be
> very wrong, isn’t it?
>
> DISCLOSURE: Long BRK.
DISCLOSURE: Long GLD, small position. Closed all my shorts and other longs. making money.
On Jan 10 11:51 AM Robert Perrego wrote:
> There are a lot of Hedge Funds that have made better than 4% a year
> over the past ten years. There are even more individual investors
> that have beat that 4% return. Simons not only beats Warren's performance
> each year BUT the short term nature of his trading and use of the
> short side makes me think he did not get smoked this year and now
> the return Simos had over the last 20 years compared to warrens last
> 20 years is not even close.
>
> There is a whole new subject to debate in here concerning the speed
> at which technologies change and new industries and companies eat
> at old companies profits in here with a much different and shorter
> cycle market. Even Google - a relatively new company, is now treading
> into traditionally profitable areas of Microsoft and eating their
> lunch - and this is Microsoft, one of the greatest success stories
> and best technologies in history. This fundamental change in the
> market and nature of companies could make buy and hold even less
> effective and more irrelevant in the future.
>
> Warren's marketing machine - I don't care about his annual report
> cover and was never referencing that. I am talking about the fact
> that he routinely gets on TV saying trading is inferior and he has
> even cited the short term hedge fund traders as a problem in the
> market while the hedge funds that employ that very technique sidestepped
> this latest calamity almost completely and based on 10 year returns
> dominate warrens returns by as much as a factor of 10.
>
> All the stories you hear about hedge funds going belly up? Most
> of those were funds that were in the CDS market and leveraged debt
> trading to enhance other returns and investments. The hedge funds
> that were NOT buy and hold or more private equity type strategies
> and were faster money MADE money short. Many had poor performance
> through April and May but then cleaned up on the volatility in July,
> August, September and October on the short side and posted positive
> returns in 2008 (or at least not crippling returns that destroyed
> years of positive returns) when combined with years of earlier returns
> outdistance Warren dramatically.
>
> I know many of these hedge funds and their traders and they have
> been at it since 2001 and 2002 and some from the mid nineties. I
> know many day traders that have been beating warrens buy an hold
> since 1998.
>
> So do these traders and managers get on TV telling you buy and hold
> is inferior? Criticize Warren?
>
> No - because when you do you get a whole lot of people like you that
> knee jerk argue and its not worth it. For example see how many people
> got all fired up here?
>
> More to the point - warren has influenced many people to buy and
> hold through this latest mess while dumping that philosophy when
> technical charts broke down in April, May and June would not have
> their portfolios at levels from years earlier. You lose 50% and
> that means you have to return 100% to get your money back. Rule
> #1 in trading - don't lose first, control your losses. Buy and hold
> is, by nature, in opposition to that rule.
>
> His following has increased and been greatly hurt by his 'marketing
> machine' which is intended to boost the performance and stature of
> BRK and his method while a trading and shorter term strategy has
> greatly outperformed him over the last 10 years owing in most part
> to the recent market calamity.
>
> The individual investor that clung to their 'value' stocks over the
> past year are far under-performing those that listened to the market
> and traded it over the past decade.
On Jan 10 01:30 PM The Proclaimer wrote:
> Bottom line: Those that bought and held did what was best for the
> country . The rest were only selfserving opportunist! period.
By the way - I am some friends are involved in starting a new 501(c)3. the application for 501(c)3 designation is currently in to the IRS after I have spent months working up the business plan and getting others involved.
The market is about making money. stop being some 'Proclaimer - holier than thou fool'
you don't know me.
On Jan 10 02:59 PM The Proclaimer wrote:
> Wow! and people think that I am way out there! You have got to be
> one of the most shallow people on earth to think that way. I guess
> that is why you run Mr Buffett into the dirt. I only wish that I
> could leave that much money to Charity. Mark my words Warren Buffett's
> moves are in the best interest of Our country AND those Charities.
> I wish that there were more people like him.
The Rockefeller, Mellon and Kennedy Foundations give very large amounts of money to charities every year for decades now. Do you know how they made their money? Joe Kennedy was a vodka bootlegger and bear market raider - the reason they created the uptick short law (and ironically the first SEC chairman).
Rockefeller was a Robber Baron - a rail, coal and oil magnate and partially, the way he treated his employees are the reason unions were needed and formed Mellon too. Cocaine cartels in South America give money to local villages as do crack dealers in the Bronx.
The way you make your money and the fact that you give it away are two totally different things and one does not justify or disable the validity of the other.
On Jan 10 02:59 PM The Proclaimer wrote:
> Wow! and people think that I am way out there! You have got to be
> one of the most shallow people on earth to think that way. I guess
> that is why you run Mr Buffett into the dirt. I only wish that I
> could leave that much money to Charity. Mark my words Warren Buffett's
> moves are in the best interest of Our country AND those Charities.
> I wish that there were more people like him.
The AMT affects more and more middle class taxpayers each year.
Buffet does not. For that alone, I do not like the man.
"My Secretary pays more in taxes than I do." Why doesn't he share his knowledge with her?
"Buffet (sic) and many like him have used Tax loopholes which most of us either do not know about or are unable to use."
No, you just assume he does. Here's the quote from the Brokaw interview a year or two ago:
"[My federal tax rate] came to 17.7 percent. That... is the percent of taxable income, plus payroll taxes, 17.7 percent. The average for the office was 32.9 percent. There wasn't anybody in the office from the receptionist on that paid as low a tax rate. And I have no tax planning. I don't have an accountant. I don't have tax shelters. I just follow what the U.S. Congress tells me to do."
So what we're talking about in the comparison is based on TAXABLE income, which is AFTER deductions (such as provided by your alleged tax shelters) are taken.
"The AMT affects more and more middle class taxpayers each year. Buffet (sic) does not."
You're right - Buffett doesn't affect any taxpayers.
"For that alone, I do not like the man."
Wait - you don't like him because he points out that the truly wealthy pay a lower percentage of their income than the middle class, including those who are being caught by the creeping expansion of AMT? Doesn't his argument help your argument for AMT reform?