Monday, May 30, 2005

Chicago Goes to Omaha, BRKB Valuation, Berkshire Hathaway Bank, etc

So I am biased and point out headline #1 below, about last week's trip to Omaha. It was a great trip, and we will make a few posts about the trip over the next few weeks as we compile our notes. The Motley Fool article (#2) about figuring Buffett's worth is a good back of the envelope valuation estimate of Berkshire. The bogey I think is valuing the float, and there is the growing argument about whether the value goes down slightly as it gets bigger and more difficult to deploy. Here are some links about float, if interested, here, here, here, here. The third article link below is from the previous Motley Fool article, by a long time annual meeting attender wondering if Buffett's popularity is leading to the scarcity of opportunity. Perhaps in part... The Invisible Empire article is a great one on MidAmerican's real estate brokerage role up strategy, and provides a nice case study in the value of national vs. local brands. Next, BRK finally cuts off Ron Ferguson, ex-CEO of Gen Re, after he decided to follow Greenberg's lead and plead the 5th. A few comments on the MTM losses Buffett is feeling on his currency bet. A bunch of articles on the Pacific Corp deal -- a good note on Geico's strategy and on the blues in media stocks, losing competitive advantage and readers. Finally, RC Wiley, the furniture sales shop, is starting a bank. Berkshire Hathaway Bank. I wonder if Mr. B has larger plans for it, as a competitive lender for other retail enterprises within the now sprawling conglomerate.

Buffett Group Meets its Namesake
Chicago Business Online (subscription) -
Warren Buffett, Chairman of the Board of Berkshire Hathaway and the second-wealthiest person in the world, met with 80 GSB students in an event organized by ...

Figuring Buffett's Worth
Motley Fool - USA
Spring is a wonderful time of year: Birds sing and flowers bloom -- and Warren Buffett, Chairman and CEO of Berkshire Hathaway (NYSE: BRKa)(NYSE: BRKb ...

Interesting albeit slightly main street commentary with some historical perspective on annual meetings and Buffett

Warren Buffett's Invisible Empire
BusinessWeek - USA
For years, Warren E. Buffett has been selling us everything from Dairy Queen sundaes and Fruit of the Loom briefs to Benjamin Moore paint and skillets from The ...


Berkshire Hathaway Cuts Ties With Ex-Exec
Forbes - USA
Berkshire Hathaway Inc. has severed ... chief executive. Officials at Berkshire Hathaway were not immediately available for comment Friday.

A Finger on the Pulse of Berkshire Hathaway and Warren Buffett
Throughout the spring, the snowballing financial scandal at insurance giant American International Group has put the spotlight on the firm's partner in the improper deal, General Re Corp. Could the damage extend to Gen Re's owner, Berkshire Hathaway Inc. and its legendary chief, Warren Buffett? The questions about Gen Re come on top of another that gets larger every year: Can Berkshire continue to deliver outsized returns to shareholders after 74-year-old Buffett, who has run the company for four decades, passes from the scene?


Buffett's Big Bet
Forbes: The Oracle of Omaha bet on a falling dollar, but it's starting to rise.

Warren Buffett Says He's a `Bull' on British Pound (Update3)
Bloomberg –

Pacific Corp Deal

Five Days Buffett Steps Up; Another Step Down for GM
New York Times -
New York,NY,USA
... POWER PLAY After a long hiatus from deal making, Warren E. Buffett jumped back in, using some of the $44 billion in cash accumulated by his Berkshire Hathaway ...

Shark bait?
Sunday Herald -
... to the world in a surprise deal announced on Tuesday why ScottishPower had decided to sell PacifiCorp to
Buffett's Berkshire Hathaway investment business. ...

Business: Buffett Pays $5.1 Billion for Utility and Promises More Deals NYT By HEATHER TIMMONS and JAD MOUAWAD Warren E. Buffett bought the electric utility PacifiCorp from Scottish Power, promising to buy similar assets in the future.

Business: Buffett Steps Up; Another Step Down for G.M.
GOOD news abounded this week. Americans were all a bit wealthier, at least if they own homes; the economy grew faster, rebounding from a bit of a slowdown early in the year; and markets rose.


Buffett's AAA Discount
Motley Fool -
I'd never attended before, so it was a tremendous thrill to meet Warren Buffett and Charlie Munger and let their wisdom massage my inner contrarian in person. ...

GEICO's Lean, Green Machine
Motley Fool - USA
... As Warren
Buffett explains in his most recent letter to shareholders, "a company (in a commodity-type business) holding a low cost advantage must pursue an ...

Big Media Blues
Motley Fool - USA
... During the press conference at the recent Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) shareholders meeting in Omaha, Nebraska, Warren
Buffett and Charlie ...

Proposed Bank Would Handle RC Willey Loans
KSL-TV - Salt Lake City,UT,USA
SALT LAKE CITY (AP) -- Billionaire investor Warren
Buffett's Berkshire Hathaway company plans to operate a Utah industrial bank to handle consumer loans for ...

Trip to Omaha by the Buffett Group, May 25, 2005

Hard to top two hours with Warren followed by a free lunch. Some pay $210,000, others pay group rates on Southwest to Omaha. Oh yeah, plus the cost of the Chicago MBA.

One of my favorite takeaways:
"If you had one silver bullet with the opportunity to kill one competitor, who would it be?"
"Progressive Insurance. And then I would shoot them again just to make sure they were dead."
[Laughter ensues around lunch table]
"That said, if you really want to get to know the business economics of an industry, that is one of the best questions there is, coupled with another, being 'If you had to choose only one competitor to compete against, whom would it be?' I did that once, going around to ten CEOs in the coal industry, and by the time I was done, I knew the industry economics."

Thursday, May 19, 2005

Courtesy of group member Jayson Noland -- you'll need a little background in Fama French here (HML - high book to market ratios minus low book to market ratios -- e.g. long value short growth, SMB, long small cap short big cap): Peter Lynch was not a value investor based on his t-stat on the HML loading that was calculated in class (only 0.5073 t-stat, not different from zero). Lynch had a very high loading on SMB (a 9.75 t-stat) and a high loading on the momentum factor (3.86 t-stat). Therefore, he was more a small-cap momentum investor than a value investor.

As Warren E. Buffett was named in the article along with the value investing imposter P. Lynch (and with an upcoming trip to Omaha), we decided to make certain the Buffett Club’s namesake is what he claims. With Berkshire monthly returns from October 1976 through November 2004 and data from the French’s site, we ran excess Berkshire returns against excess market and a 3-factor model. The CAPM results show a highly significant, monthly alpha of about 1.5 (note to readers: MONTHLY alpha over ~30 yrs!) Enticed by the 0.74 beta, we ran excess Berkshire against FF finding a significant, monthly alpha of about 1% and a big, positive, significant loading on HML. We also see a negative SMB beta suggesting that WEB is a large-cap value investor. Nice to know our $175 tickets on Southwest to Omaha and back will be money well spent.

We ran a few other regressions (not shown) to see how WEB has fared over the years. Berkshire’'s alpha does fall a bit as we advance in 10-year blocks to the present. Of course, Berkshire didn'’t fare incredibly well during the most recent 10-year period as the technology boom had an impact, though we still find a positive (insignificant) alpha. The graph in post below shows Berkshire returns less the market on a monthly basis. Not to shabby for a Nebraskan in a bad suit. Posted by Hello

Berkshire minus market returns, Monthly. Posted by Hello

Wednesday, May 18, 2005

Gross on 10yr Yields and Buffett on Non-Proliferation

Damn interesting day I would say. First Bill Gross pulls a Kirk Kerkorian and reminds the electronic herd and the news media (and myself), who all thought rates had only one way to go, that they don't. 3-4.5% predicted near term for the Ten Year US Bond. Go figure.

If we had to forecast (and we do), we believe a range of 3 - 4½% for 10-year nominal Treasuries will prevail during most of our secular timeframe and that yields on Euroland bonds will be slightly lower due to their structural unemployment problems, disinflationary incorporation of new Central and Eastern European countries into their existing family of nations, and more growth-inhibiting demographics.

Maybe Sam Zell is right on Monday night at
Gleacher Center when he said he didn't think there was necessarily a property bubble. There is just too much damn money swishing around. One thing though I know is that most of that money isn't brave, isn't sticky, and is already a bit nervous. Read Gross's comments here. Then, Buffett and Koppel do nightline and Buffett suggests that a nuke in America is a virtual certainty over next 60 years. He supports NTI, an advocacy organization run by Sam Nunn working to stop nuclear proliferation. They have made a movie that Buffett recommended seeing at the Annual Meeting. You can get a free copy here. Buffett called it the "most important issue facing mankind". Then, his summation comment, a classic, went something like this:

"Paying whatever sum to stop the proliferation of nuclear weapons would be the deal that makes it look like we overpaid for the
Louisiana purchase."

Annual Meetings Revisited, Budweiser in Omaha

Good set of notes from Morningstar's Dreyfus Neenan with links summing up BRK and WSC meetings from earlier this month. Comment on hurricane season. While losses may come through, would be good for pricing environment long term. Motley Fool on Budweiser, Fortune on finite insurance, Business Week on SEC investigation (never get regulatory bodies competing over you for headlines -- ouch!), a pretty funny article about old crotchety men upending the young hedge fund upstarts on Wall Street (Kirk, Carl, Warren, etc), and at end a good article on the growth of Clayton Homes -- a compelling story for any business facing difficult lending conditions but with opportunities for growth. An address in Omaha might make a good corporate headquarters. GSB Buffett Club heads to Omaha next Wednesday to meet with the Oracle. Last year he served Coke. This year, Budweiser? A true value investor can only hope of sharing a Bud with the Oracle...

Roundup of the Berkshire Hathaway Meetings
by Dreyfus Neenan |
05-18-05 | 06:00 AM
You can often learn a lot simply by watching. So at the 2005 Berkshire Hathaway BRK.A BRK.B annual meetings--the shareholder meeting in Omaha, the subsequent analyst/news briefing (which is not open to the public or shareholders) and at Wesco Financial's WSC annual meeting in Pasadena, Calif.--we watched. And listened. We've parsed our notes and selected what we think were chairman Warren
Buffett and vice chairman Charles Munger's most salient insights for investors.

Atlantic Ocean Hurricane Season May Yield Nine Storms, Five of Them Major The Atlantic Ocean hurricane season this year will be more active than normal, with as many as five major hurricanes, following last year's historic season when four of the storms hit Florida, U.S. government forecasters said.

The King Is...Slipping
Motley Fool -
... Keep in mind, however, that
Buffett said, "I would not expect the earnings to do much for some time, but that's fine for us." Buffett's time horizon is ...

Berkshire: 2 insurance workers put on leave
BusinessWeek -
... placed on paid leave effective Monday as federal officials conduct probes into insurance practices, billionaire investor Warren
Buffett's Berkshire Hathaway Inc ...

Oh, The Games Insurance Companies Love To Play (subscription)
By Andy Serwer

Old Money
The geezer billionaires who are upending Wall Street.
By Daniel Gross

Competitive Edge - Technology, Berkshire Hathaway resources drive ...
Maryville Daily Times - Maryville,TN,USA
... Following the 2003 merger with Warren
Buffett's Berkshire Hathaway, the company gained unprecedented access to capital, which put its loan packages ...

Friday, May 13, 2005

Wesco Annual Meeting Notes

Great set of notes from Wesco Annual Meeting, courtesy of 'teabone'. Nothing dramatic here, but interesting comments about China ('we won't have many opportunties there'), nukes ('there will be one in US in next 60 years'), Cort Furniture ('the Enterprise Rent-a-Car of the furniture rental business'), mental models ('you need more than one'), WalMart ('fabulous enterprise'), GM ('never short a company doing $160b of business'), AIG ('Greenberg gilded the lily, but it's no Enron'), and mutual funds ('we have closet indexers, in which case you are being played for a sucker').

Thursday, May 12, 2005

Buy Berkshire, it's cheap?

Interesting comments from the Fool discussion boards, plus an article. Of note, article one about undervaluation. The Day 1,2,3 are hilarious photojournalism. Too much detail…

Berkshire Undervalued… see commentary about intrinsic valuation (IV) made at Berkshire Press Conference. Interesting that I haven’t seen this written anywhere else…

Day 1 -- Arrival in Omaha

Day 2 -- The Annual Meeting

Day 2 -- After the Meeting

With so much capital chasing any equity with a pulse, prices are too high for
Buffett and many other value investors.

More General Re Mess, Motley Fool on DCF, and Gates on Tech Valuation

Buffett once remarked that surprises in the insurance business are never pleasant. General Re continues to fit the bill. It’ll die down soon as the blood drains down into the gutters and the press finds new caged animals to pursue. Until then, a few more heads may roll at Gen Re and even TIAA-CREF (CFO is ex-Gen Re). Motley Fool posts some good articles about valuation and guesses about Buffett’s style/methodology (headlines 2 & 3), funny article about the Annual Meeting from the eyes of the Sunday Times in Britain, comments by Gates about tech valuation, Santulli in NYT about NetJets and new jet taxis (notice they are not yet called a competitive threat to NetJets – wonder why they aren’t called the southwest airlines of business jets?), plus Cousin Jimmy’s expanding entertainment conglomerate. Finally, at end, good summary article on Buffett for the new members in the audience…

SEC May Pursue More General Re Officials, Person Says (Update2)

Buffett by Numbers
Motley Fool -
Want to invest like Buffett? We derive the method Buffett uses to analyze the quantitative worth of a company. By Jim Schoettler. ...

Risky Business?
Motley Fool -
... Markowitz may have won a Nobel Prize, but Warren
Buffett has beaten the market soundly for 50 years running. The handful of other ...

Buffett turns into prophet of doom
The Sunday Times -
... This crowd was more soberly attired. Shivering on an unseasonably cold morning, they were here to see Warren Buffett, the world's most successful investor. ...

Gates' Non-Storm Stirs Tech Contrarians -
... valuations. His response: Well, I think any statement about stock prices is always suspect unless it's made by Warren
Buffett. [But ...

On the Road: Business Jets Are Back, if They Ever Went Away,
By JOE SHARKEY Published:
May 10, 2005
Oil, schmoil, many users of business jets appear to be saying. According to Richard T. Santulli, many business-jet users are simply looking at the added cost of fuel "relative to the cost of the trip or the charter itself" and saying: "Hey, what's another 500 bucks?"

Buffett Takes Radio Margaritaville To The Sky
Billboard Radio Monitor - New York,NY,USA
Singer, songwriter, best selling author and former Billboard reporter Jimmy Buffett and Sirius have announced that Buffett's Radio Margaritaville, which has ...

Be Like Buffett, Motley Fool

Quarterly Results, SEC Charges, Bill Miller and Jeremy Grantham

Headlines: 1Q results, insurance purchase from GE mentioned at Annual Meeting (Medical Protective, a 106yr old company that owns the dentist malpractice market and based in Fort Wayne IN — right up Buffett’s alley), dividend discussion, etc. Also, attached are two other greats commenting on 1Q results, Bill Miller and Jeremy Grantham. Bill queries the current Oil Bug and remains bullish on US equities, and Jeremy says sell your overvalued roof. Plus, one of my favorite quotes from Annual meeting, paraphrased: “Selling financial assets during a panic is a bit like leaving a burning theater during a fire, only you can’t leave your seat until you can convince someone else to take it.”

Berkshire Hathaway 1Q Profit Falls
Washington Post - Washington,DC,USA
NEW YORK -- Berkshire Hathaway Inc., the insurance giant run by billionaire Warren
Buffett, on Friday said its profit fell 12 percent in the first quarter ...

Buffett to pay $825M for GE insurer
NEW YORK (Reuters) - A unit of Warren Buffett's Berkshire Hathaway Inc. agreed to buy General Electric Co.'s Medical Protective Corp. ...

An Executive at Berkshire Faces Charge From S.E.C.
By TIMOTHY L. O'BRIEN Published:
May 7, 2005
Berkshire Hathaway, the company controlled by Warren E.
Buffett, disclosed late yesterday that the Securities and Exchange Commission plans to file a civil securities fraud complaint against a senior vice president of the General Re Corporation, a Berkshire insurance unit mired in a number of investigations for possible financial manipulation.

Buffett's Berkshire Says SEC May Sue Executive at General Re
May 7 (Bloomberg) -- Warren
Buffett's Berkshire Hathaway Inc. said an unidentified executive at its General Re unit may be sued by the Securities and Exchange Commission as the regulator investigates reinsurance accounting.

Buffett's Talk of Dividend Sends Daunting Message: Chet Currier
Bloomberg -

Berkshire Profit Falls 12% on Buffett's Currency Bet (Update3)
Bloomberg - USA

Annual Meeting Notes, Commentary, Investigations, and Long Lost Cousin Jimmy -- Front Page News!

So I and a few other hearty Buffett Club members attended the annual meeting last weekend, greeting the morning chill along with thousands of other devotees in Omaha to kiss the ring. Habemus Oraculus. There were a wide range of investors in attendance, see link. Charlie Munger was on fire this year. Very few of his typical, ‘nothing more to add’, and instead he offered an incisive commentary on most issues. It was fun. They started with the quote below. My perspective: in 1999 (my last meeting) the median question asked was about internet and tech stocks, from a mildly I told you so sort of perspective. Repeat, 2005. Replace “Tech” with “Property” and “Real Estate”. See Buffett’s comments on per acre land prices in Laguna beach. Bubblelicious. After the quote below follows a motley assortment of articles and news, ranging from three must reads detailing an unusually thorough set of notes from the meeting (first link is best), a few articles on is a note from Pesek at Bloomberg about Asia’s argument about who is right about the dollar – Warren or Alan, good note on the Budweiser purchase (I think he is still buying), more commentary on meeting, on HIH scandal from NZ perspective, NetJets pilots picketing (they don’t have many good outside options…),then a Robert Miles commentary on what guides Buffett’s decisions. Penultimate, a front page WSJ article about Cousin Jimmy (subsctiption only). You heard it here first folks. Sister Doris even wants DNA testing… Then, notes from Morningstar on the Annual Meeting.

“I’M WARREN. He’s Charlie. We work together. We really don’t have any choice, because he can hear and I can see.” Thus Warren Buffett and his vice-chairman, Charles Munger, to some 19,000 shareholders assembled in Omaha, Nebraska, for the annual general meeting of Berkshire Hathaway, a publicly-quoted investment holding company that has wiped the floor with the S&P 500 in all but six of the past 40 years. The average age of the two gurus is 78, but in a fine display of stamina and humour they tossed questions back and forth for six hours on everything from the end of civilisation as we know it to selling furniture. (Economist Online)

Must Reads:

Notes From The 2005 "Woodstock of Capitalists"

The oracle speaks: Warren Buffett and Charles Munger warn of real estate 'bubble,' the risk of terrorist nukes.
CNN: Text from annual meeting…

From The Economist Global Agenda
Economist -
But Warren
Buffett has survived such spots before. ... Mr Buffett says that he is "comfortable" with both German and British companies and owns a bit of both. ...

Other of Interest:

Greenspan or Buffett? Asia Mulls Who's Right: William Pesek Jr.

Welcome to Miller Time, Loser. The great American beer crisis. By Daniel Gross

Reporters' Notebook: Follow the Acme Brick Road

By KAREN RICHARDSON of The Wall Street Journal and ALISTAIR BARR of MarketWatch
Munger-isms, grumble-isms

World's two richest men help guide Berkshire
Seattle Post Intelligencer -
... Warren
Buffett and Bill ... Buffett has said he would never retire as chairman and chief executive officer of Berkshire, short of physical or mental incapacity. ...

In Buffett they trust as they buy and hold
Houston Chronicle -
... and hold" investing. It's the strategy of Warren Buffett, one of the world's richest men and its foremost investor. Last weekend ...

General Re has been troubled acquisition for Buffett
Investor's Business Daily (subscription) -
SAN FRANCISCO (MarketWatch) -- In a 2002 letter to shareholders Berkshire Hathaway Chairman Warren Buffett summed up his experience with General Re, a big ...

4 tough questions for Warren Buffett
MSN Money -
... Among other highlights, attendees sample the wares of many
Berkshire (BRK.A, news, msgs) subsidiaries (including DQ and See's Candies) and watch a company ...

Buffett can expect bumpy ride ahead -
Wellington,New Zealand
... Andrew Main writes. Investment legend Warren Buffett will shortly confront one of the most difficult dilemmas of his career. He will ...

Can newspapers escape Warren Buffett's gloomy prediction?
Yeald -
Warren Buffet is a longstanding director and shareholder of The Washington Post. Yet, he isn't exactly touting his newspaper investment. ...

NetJets Pilots to Picket Meeting of Berkshire Hathaway ...
Business Wire (press release) -
San Francisco,CA,USA
April 28, 2005--On Saturday, April 30, pilots employed by fractional-ownership airline NetJets will picket outside the Berkshire Hathaway shareholders' meeting ...

Wednesday, May 04, 2005

"It's class warfare, my class is winning, but they shouldn't be. .."

Warren does a post Annual Meeting sit down with Lou Dobbs. (The video is here.) The usual topics came up: nukes, twin deficits, import certificates, weakening dollar, overvalued markets, social security vs. the current deficit, estate tax, AIG, etc. Mostly sobering thoughts, but we did end on this happy note:

"I think it's a terrific country...You never want to go short on America...Our children, our grandchildren are going to live better than we do in this country. No question about it in my mind."

And lest you be concerned about Warren being able to survive on his $100,000 salary, he revealed that he is pulling down $1700-$1900 monthly in social security.

Tuesday, May 03, 2005

The Buffett Group take in the sights and sounds at the annual meeting. There were a lot of Columbia students, but we had better signage. Posted by Hello

In Omaha on Saturday at the Annual Meeting... At dawn the temperature was just above freezing, when just beside the growing line you could find Mr. Reppenhagen, proud Buffett Club member, and Boodell pose with another proud Berkshire shareholder, and her keeper in the hat. Nice horns... Posted by Hello

Monday, May 02, 2005

Thoughts from Omaha

A number of students from Chicago GSB attended BRKA's Annual Shareholder meeting on Saturday. Warren and Charlie were straigh-talking, witty, and showed few signs of aging.

Warren elected not to comment on the AIG investigation, but did say that AIG was still a great company with a deep bench of managers. He also mentioned that a small (sub-1 bn) acquisition would hopefully be announced in the next few weeks. has a fairly complete set of notes from the Q&A session. Click here to see them.