Don't Hate Warren Buffett, Hate the Game

Includes: BRK.A, BRK.B
by: Ken Caruso

On Wednesday, the Reuters Blog posted an article by Rolfe Winkler called “Buffett’s Betrayal”.

Rolfe goes on to say:

Today, Buffett remains famous for investing The Right Way…

…But it turns out much of the story is fiction. A good chunk of his fortune is dependent on taxpayer largess. Were it not for government bailouts, for which Buffett lobbied hard, many of his company’s stock holdings would have been wiped out.

The gist of the article is while backing companies like General Electric (NYSE:GE) and Goldman Sachs (NYSE:GS) with debt, Berkshire Hathaway (NYSE:BRK.A) holding stocks like Well’s Fargo (NYSE:WFC), Bank of America (NYSE:BAC), and US Bank (NYSE:USB), Buffett has used his weight to save Berkshire Hathaways and hence his own investments. As a result he is a major benefactor of the bailout. The take away for me is that the author feels that Buffett’s skin in the game makes his support of the bail outs unethical.

Then he goes on to say…

Yeah, Buffett TALKS a lot about derivatives, about leverage, but what does he DO? He trades derivatives and, if I recall correctly, has said he doesn’t want to see more substantial margin requirements.

And I didn’t even mention the accounting shenanigans these guys are playing. Buffett SAYS a lot about accounting integrity, but his businesses are engaged in some very shady number fudgery.

And what about the General Re case? Everyone forgets that now too.

People give Buffett a free pass because they think, deep down, he really cares about their interests. I think he does too. Just not when they conflict with his own.

I spent about 30 minutes working a response to this article. To argue what I believe some misleading statements. Then I noticed this morning that the article has been picked up on Seeking Alpha. Browsing through the comments I found someone that resonated most of my thoughts which you can read here.

The only other thing I think worth mentioning is the derivatives statement. People love to poke at Buffett, going on about how he has said they are “Dangerous” and “financial weapons of mass destruction”. Well you don’t have to dig to deep to hear his explanation of those contracts. At this year's shareholder meeting someone asked him about this and (forgive my memory these are not exact quotes) his answer was basically, “yes they are dangerous. Cars are dangerous too when not used properly. ” “We felt these contracts were mispriced and we feel we will make some money on them in the long term, in interim we have premiums to invest today”.

Things that are complicated can be dangerous, especially depending on who is employing them. This also means they can be mispriced.

Disclosure: I own shares of Berkshire Hathaway at the time of this writing.