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Money Managers and the Berkshire Hurdle

Good points Nadav and Najdorf. When you invest in a fund you pay the net asset value of the holdings and agree to forego a share of future performance returns through fees. With BRK, the market is theoretically valuing the assets/holdings plus or minus a premium/discount based on assumptions about the future performance returns on those assets. That cost/premium for BRK could translate into a cost much greater than a hedge funds 2/20 fees if the the market's growth assumptions for BRK are high enough (e.g say the share price requires a 40% annual return on assets/holdings just to justify the price). In other words, just because BRK shareholders don't pay a traditional fee for management's expected ALPHA generation, it doesn't mean they aren't paying an equal or greater fee/cost through a high share price premium to asset values.

Money Managers and the Berkshire Hurdle

Hedge fund fees are, indeed, ridiculously high, but there's one flaw in your argument with respect to Berkshire: You don't take into account Berkshire's massive size relative to most, if not all, hedge funds. If Warren Buffet was running a small to medium-sized fund it would be different. However, the Berkshire entity has grown so massive, that they need to invest multiple billions in any one investment idea, just to make a dent in performance returns. I think anyone would agree that this creates prohibitive scale/liquidity/techni... issues for most potential investment ideas and reduces profit potential. Also, on what basis do you suggest that Berkshire's stock is not overly or fairly valued? Buffet's investment acumen is certainly no secret, so shouldn't his skills be already priced onto the stock? Berkshire is an extremely difficult stock to value, not least because it's hard to determine how you discount Buffet's advanced age when considering longer-term future performance. Berkshire is a great company, but as it's said: "a great company is not necessarily a great investment, but it's a good place to start looking". Disclosure: I am, in fact, long Berkshire.

Don't Try to Fix the Rating-Agency Model: Get Rid of It

You're very ill-informed Mirsovir, so happy to trade with you "often and in volume". The ratings for corporate ratings have been good, OVERALL, although there are always going to be some exceptions and bad calls. Enron, Worldcom, etc. were misjudged by not only the rating agencies, but most everyone else on Wall Street, including the analysts on the buy and sell-side. The bad calls from the Asian crisis were for sovereign, not corporate ratings. Look at the corporate default statistics by rating category and you will find that, OVERALL, they are VERY accurate and predictive. That is simply a statistical fact.

Don't Try to Fix the Rating-Agency Model: Get Rid of It

The problem with the agencies is not that there are too few competitors -- quite the opposite. For corporate ratings, the agencies track record is good, overall, because there are only two main players (Moody's and S&P) and most bonds require ratings from both. For that reason, the agencies can rate objectively without the threat of losing business. In structured finance, the existence of three main agencies (Moody's, S&P, and Fitch), with ony two ratings generally needed, meant that one agency was tough on the ratings, the issuer would just go elsewhere for their ratings. This "rating shopping" is what led to inflated ratings for many structured finance credits. With more agencies, the "rating shopping" and inflated ratings would likely worsen. Competition reduces quality in industries where objectivity should prevail over a clients immediate desire (a high rating).

RBS Predicts Global Market Crash: What's In It for Them?

What's in it for them? It's a sad commentary (albeit, not without justification) that journalists assume that any prediction by an analyst is driven by the ulterior motives (of the institution, no less -- what's in it for RBS?) and not the actual beliefs of the individual analyst/strategist. I'm as skeptical as anyone on analysts' abilities and the usefulness of their recommendations, but surely you must believe that there are at least some analysts that actual call it like they see it?

Buffett's Soggy Logic on Guarantors' Ratings

Buffet is right on the money with his comments and, again, shows his integrity by not allowing his stake in MCO to prevent him from criticising the rating agencies. Bravo!!!! Of course there are exceptions and of course the market is not always right but it is truly extremely rare, if not almost non-existent, to find a 14% yielding bond (c. 10% more than gov't yields) that is truly AAA risk/"risk free". Buffet was merely pointing out one anecdotal piece of evidence that supports what is now obvious (that these ratings were a joke). I don't think he ever said or implied that this was the only evidence or that markets were 100% efficient.