Warren Buffett, The Original
In the beginning, Warren Buffett was a prototypical “Deep Value Investor”. Driven by financial statements and waiting for “Mr. Market” to offer good dependable companies at irrationally low prices. Modeling his ‘style’ after his teacher, Benjamin Graham.
I, too, started with Ben Graham “Securities Analysis” and “The Intelligent Investor” and my first ‘style’ was also ‘value investing’. Later I found that a “good value” could become a “really good value” and then an “Insanely Good Value” on the way to “Crazy Wild Good Value” all the while causing you to lose buckets of money.
That led to my attempt to find ways to “spot the bottom” that eventually led to a set of indicators to let me much more reliably “call the bottom”; and eventually the harder task of “calling the top”.
While I now mostly use those tools, deep in my heart I’m still a “value investor” and idolized Warren Buffett for years.
One of my best “buys” ever was one share of BRKA at $2800. At the peak it was worth $150,000 though it is now well off of that high. I’ve often said my largest regret was not buying two shares; and that I would never sell – that task would fall to my heirs.
I’m now having second thoughts…
Warren Buffett the Pitch Man
At the end of their careers, famous folks will often “pitch” a product. Using their name and fame to sell everything from Yogurt to Cars to the all the junk sold by Art Linkletter when he became a pitchman. Inevitably the “deal” is to use their good name to lift the product. What is forgotten is that the product inevitably tarnishes the good name of the celebrity in exchange… (This is well known and was covered in my MBA Marketing class).
So what is Warren doing? Pitching for Obama. He has embraced the roll of “Pitchman” for Obama and his “Tax The Rich” scheme. It’s a tarnished scheme, and Warren is not looking so much like an elder statesman and trusted adviser any more. Now it’s more like “Lackey To The King”…
But wait, there’s more!
The pitch is a lie.
It pains me enormously to say that. My Idol is a liar.
Mr. Buffett makes the pitch that as a rich person “his tax rate is lower than his secretary”. There is a kernel of truth in it, he does get taxed at a lower level; but it is NOT because rich folks in general get a lower tax rate or pay less taxes. It is because of one small particular rule that applies only to folks who run hedge funds and similar investment programs. The assumption is that money they get must come from selling securities that have been held and traded. Capital gains. So why tax what are arguably capital gains at the ordinary income level? THAT is why he is taxed at a lower level; because he basically runs a hedge fund like vehicle and gets capital gains rates.
Mr. Buffett is clearly financially savvy enough to know he is lying. At that point, I find it very hard to hold him on high any more. The sheen is looking more like the glisten of sweat on the fevered brow of the Pitchman…
For a limited time only! Two, count them TWO!! abuses for the price of one!!!
Mr. Buffett stands to personally gain enormously from any increase in the income tax rates.
In fairness, I stand to gain along side him as long as I hold BRKA stock. Why? How?
Thanks to the Laffer Curve we know that rich folks hire others to hide their money from taxes so that they don’t actually pay more than a given peak level. What vehicles? Well, among others, annuities and life insurance products. What is THE largest business segment for BRKA? Why, insurance! So if rates are raised, his sales will increase. Nice…
Yes, Mr. Buffett is “talking his own book” in the parlance of Wall Street. He’s talking up the stock he holds. Trying to influence government policy for his own enrichment and the enrichment of his company and stockholders.
Act Now! We’ll throw in a special gift! (to the pockets of BRKA…)
What in many ways bothers me the most is not the Pitchman Problem, and not the Talking Your Own Book. No. It’s the walking away from the Deep Value Investor honesty and embracing “Crony Capitalism” and what can only charitably be called “An Offer You Can’t Refuse” investing.
In this decline, Mr. Buffett has bought Goldman Sachs GS and Bank of America BAC and others. But not at the same prices you can have. No. He has used the gigantic size and in some ways monopoly position of Berkshire Hathaway to strong-arm targets into giving him a deal no one else can get. Sometimes when the Government is squeezing them on the other side to do such a deal. (Quid pro quo? That “I Don’t Know” is the problem.)
He gets Preferred Stock (that feeds at the dividend trough ahead of the common) but even then with a “kicker” of warrants. Essentially undated options to buy more of the stock at the extraordinary prices of the bottom when the balance sheet is damaged, but later and after all that cash has improved things. I could write a justification for why that actually isn’t too evil a thing to do (short form: The money he gives them is why the stock rises later, so he ought to gain) but the bottom line is still that HE is buying what YOU can not get, based on power and position. Was he the consultant to The One that had the Fed squeeze his targets to need more capital that only he could reasonably provide? We may never know…
No other company in the world has the position in insurance as BRKA. It is the largest “re-insurer” in the world. A huge cash cow making giant buckets of money. The insurance companies insurance company. If he comes to call, any financial company MUST listen.
When did we turn from an economy where investors engaged in a fair, free, and open market; into one where power and size made some stock purchasers “more equal than others”?
So we see the inevitable result of power. Mr. Buffett has been corrupted. He is now angling more to “buy the right laws” and “strong-arm the right companies” and “gain the right place at the political favors table” than to pick good companies that are good investments selling at a low price on the open market.
My Heart Weeps
Teardrops softly soaking into the carpet. Faint whimpers of distress. The occasional moan and grown of a spirit being crushed. Those are the sounds of an icon being clast…
So now I move on. Without Mr. Buffett as my guide and signpost on the way to being an honorable and Intelligent Investor. Time to dig out the Ben Graham again…