Saturday, March 10, 2012

Buffett's Fangirls Leave Something Out

Just like many others, I follow "The Oracle's" every step. I read his letters. I follow various SOTP analyses on BRK, and how much it is "worth". My first ever investment book was Buffettology.

But I am tired of Buffett, and his fangirls across the mainstream media, twitter and the blogosphere: the famous investor has become just an oligarch mouthpiece for the current administration on controversial policies, while hogging one bailout after another, and skipping on taxes himself. Buffett is also getting a huge pass from the fawning MSM on his abject mishandling of the long-awaited succession, including nepotism, lack of foresight and non-disclosure.

Here is what gets skipped over by the drooling anchors across various channels:

(1) Buffett has been a very successful investor in the PAST. He has not generated any alpha in the last 10 years, which happens to coincide nicely with the greatly increased MSM attention and the switch in investing strategy (see next paragraph). To be fair, at his size, he probably can't.

(2) Buffett no longer invests the way that made him famous. One of my fave blogs, Can Turtles Fly, describes the three stages very well: classic value, classic Buffett (until the 1990's) and large conglomerate/institutional (since then). The Buffett approach to investing today is very, very different from what he used to do. Again, size plays a role. But if you hold BRK, you need to be aware of both the lack of alpha and the "new" Buffett approach.

(3) Buffett- in the early years- was a huge beneficiary of tax breaks, but now that he has his, he does not mind asking everyone else to pay up. Jeff Matthews explains more here.

(4) Buffett was a polygamist, as explained in his big bio. Unlike the inbred weirdos along the AZ-UT border, he got away with it in the court of public opinion. (for the record, I fully support freedom of relationships between consenting adults)

(5) Buffett is a true oligarch who has been benefiting extensively from various bailout programs over the last few years:

- Investments in GS, BAC, USB and WFC: the banks have been among the biggest government program beneficiaries. The absolute travesty of having AIG pay out 100 cents on the dollar on the CDS contracts that GS held with taxpayer money sure helped Uncle Warren (and Uncle Lloyd, of course). And do not buy "we did not need the bailout" line: one a couple of names in the industry fail, everyone is suspect. The optics of Buffett calling Obama and two days later doing the BAC deal are really bad, regardless of whether they were connected

- Investment in GE: one of the biggest pigs in corporate America, GE blew up, and was saved by the taxpayer to the tune of $140 BILLION. GE keeps getting taxpayer funding for things like locomotives and "green things" while, at the same time, promising purchases of Obamamobiles. Don't forget that GE got tax refunds despite making billions in profits.

- Investment in AXP: the securitization markets froze so AXP was allowed to issue FDIC-backed debt (read, guaranteed by you and me).

- Investments in a large number of insurers: the entire industry benefited from TARP in 2009; again, it does not really matter if WB took money directly if many players in the industry did (Prudential, The Hartford, Principal...)

- Investments in the housing complex:
it is not just the banks that benefit from the $2 trillion in housing bailouts. Buffett owns Clayton Homes, Benjamin Moore paints, Shaw Industries carpets, Acme Brick, several furniture names.

- Investment in Coca-Cola:
KO spends billions on HFCS, and the taxpayer spends billions every year to subsidize HFCS...

- Obviously, any company will try to maximize every benefit but I see pattern here with the major holdings.

(6) Buffett has grossly mismanaged the succession plans. This is becoming more of a concern as cognitive abilities- on average- do decline with age. If it were a private company, sure, do whatever you want. But you have shareholders, and, yet, you appoint your son to be Chairman, mismanage the situation with the multiyear heir-apparent David Sokol, and, in the latest letter, don't reveal any details on the putative successor/s outside of the two value investors who got little fiefdoms to run and prove themselves. What other public company CEO can get away with such antics? Where is the board?

(7) And, while Buffett is quite public about other people paying their taxes, his own NetJets is being sued by the government over taxes... No irony here at all.

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