Enough with the Buffett Critics

 |  Includes: AXP, BRK.A, BRK.B, COP, USB, WFC
by: Dan Braem

There always seems to be critics of Warren Buffett, including a recent piece on Seeking Alpha titled “Buffett’s Betrayal”, written by Rolfe Winkler. To all the critics, I say enough is enough.

Some of the critics suggest that Buffett’s support for the bank bailouts was for selfish reasons. To expand, the critics suggest that since Berkshire Hathaway (NYSE:BRK.A) has large stakes in Wells Fargo (NYSE:WFC), American Express (NYSE:AXP), and U.S. Bancorp (NYSE:USB) (among others), he was merely concerned with his own self-preservation.

Other critics comment on Berkshire Hathaway’s derivative positions, maybe suggesting Warren Buffett is somewhat hypocritical. To expand, Buffett is famous for stating derivatives were the equivalent of “financial weapons of mass destruction”, yet Berkshire Hathaway maintains billions of derivative positions on its books.

Of course, there is always the “Buffett has lost it” crowd. Buffett makes mistakes – the most recent example is his purchase of Conoco Phillips (NYSE:COP). Buffett even acknowledged this purchase as a mistake.

I guess when someone is on top, there will always be critics and detractors. What are their motives? To make themselves look good by criticizing a legend? I don’t know.

But to address these critics, I would like to make the following points:

1) Clearly, the TARP program helped many banks survive, and in turn, helped Berkshire Hathaway’s financial portfolio. But if Buffett suggests that the banks should receive federal aid, does this imply his only incentive for those comments is the self-preservation of his net worth? Is there any possibility that Buffett believed that federal aid was the only measure that would have saved the financial system?

I personally believe that without government intervention, the banking system would have collapsed. Many financial experts believe this to be true. So because Buffett is in this camp, it means that he is only speaking for self-fulfilling reasons?

To keep this in perspective, Buffett has also commented that he believes in the estate tax (and a large one). Please keep in mind that as one of the wealthiest people in the world, a large estate tax in no way benefits his (and his family’s) future net worth – it does the opposite! In either case, it is almost a non-issue, as Buffett is giving a large portion of his net worth to charity.

Also keep in mind that there has been no better fiduciary leader of a publicly traded company (at least in my opinion). If someone can find a better caretaker of corporate assets, please let me know. And let’s also not forget that Buffett’s salary has approximately $100,000 to $200,000 over the past decade. Find me another CEO with that track record. To link Buffett with personal greed is a stretch.

2) Derivatives. Please keep in mind that more than anything, Berkshire Hathaway is an insurance company. So the fact that Berkshire Hathaway is involved with Credit Default Swaps is trivial. If Berkshire Hathaway loses money on these transactions, then they lose money. But unlike AIG, Berkshire Hathaway certainly didn’t bet the franchise.

Not even close. Berkshire Hathaway has also sold several billion dollars in put contracts (on various indices). For those individuals who aren’t familiar with Berkshire Hathaway, investment float has been a huge ingredient to Berkshire Hathaway’s success. Selling puts is just another way of increasing float.

My guess is that Berkshire will keep all the premiums written on these put contracts, plus all the related investment gains. Another potential big win for Buffett. Where will the critics be in ten to twenty years when the put positions are worthless?

Overall, the difference between Berkshire Hathaway’s derivative positions and other companies’ derivative positions is that Buffett and company know how to manage risk much better.

3) Buffett is washed up? This is crazy. I will only suggest the following points. One, Berkshire Hathaway may be the strongest company in America. Two, Buffett made greats deals with GE and Goldman Sachs (among others) by getting preferred shares in these companies. Quite honestly, I didn’t see anyone else doing these deals. Three, I still feel he is the best CEO out there. Again, find another leader that you would prefer running a major corporation. I bet this would be a small list.

Overall, I believe the critics of Buffett are merely seeking attention. I recently published a book on Berkshire Hathaway, and while researching the company, I was shocked how few companies there are that replicate Buffett’s business principles. If I were to criticize any major business leader, I would rather spend my time dealing with the Chuck Prince’s, Jerry Yang’s, and Martin Sullivan’s of the world (and I have written about these “leaders” in the past).

I am tired of the Buffett critics.