Thursday, August 06, 2009

Buffett Vindicated!

During the crisis, Buffett faced strong criticism for selling puts on stock indices[Link], writing an op-ed calling a buy on the market in Oct 2008[Link] and his purchase of Goldman preferreds. Critics said he lost his touch[ Has Warren Buffett Lost His Touch?]. They were all wrong. Buffett was right, right and right. Those big bets will give him the best quarter ever in at least 2 years.
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'[Buffett] has a different view. He has to give returns to his investors year by year. We don't have to. We have to think in terms of the next 10, 20, 30 years. We are buying into something which we intend to keep for the next two, three decades and grow with them.'
- MM Lee

MM Lee got it wrong. Buffett's time horizon is actually forever - whatever he buys, he has the intention to keep them for as long as possible. What Buffett has to do is meet his shareholders ,20,000 of them face to face, every year at the Berkshire annual meeting and answer every single legitimate question they have which is something GIC does not do for its shareholders. Buffett publicly admits all his mistakes and take responsibility for them which is another thing the GIC has never done. All his investment moves are disclosed and that has never hurt his performance while GIC keeps many secrets claiming they will be disadvantaged if people knew what they have been doing. Berkshire is managed by a small group of people no more than the number for fingers you have on your hand while GIC has a staff size of 1000 and Temasek employs 300 people to give us sub-prime performance.
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Bloomberg : [Link]
Berkshire May Post ‘Blockbuster’ Results by Buffett’s Measure
By Erik Holm

Aug. 6 (Bloomberg) -- Berkshire Hathaway Inc., with a stock portfolio valued at more than $60 billion, may report its best quarter in at least two years using the metric preferred by the firm’s billionaire chairman, Warren Buffett.
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About $11 billion in gains in Berkshire’s stocks and a recovery of derivative bets tied to equity markets caused book value, a measure of assets minus liabilities, to reverse after two quarters of declines, according to analysts and investors including Glenn Tongue at T2 Partners LLC. Berkshire is set to report second-quarter results tomorrow.
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“It’s going to be a blockbuster,” said Tongue, whose New York-based firm’s largest holding is Berkshire shares. “It may well be the greatest dollar gain in book value in any quarter in the history of the company. Warren Buffett showed extraordinary discipline in the first quarter when all others were losing their heads.”
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Buffett, one of the world’s most celebrated stock pickers, this year confessed to investing mistakes that hurt returns over the prior 12 months. Berkshire’s book value per share, the measure highlighted by Buffett in the first sentence of his annual letter to shareholders, has declined in four of the past five quarters, and 2008 marked only the second time since Buffett took over in 1965 that it dropped for a full year.
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In his “owner’s manual” for Berkshire shareholders, Buffett says he considers the figure to be an objective substitute for the best measure of the Omaha, Nebraska-based firm’s success: a metric he calls intrinsic value.

Intrinsic Value
“Intrinsic value is an estimate rather than a precise figure,” Buffett wrote in the manual on Berkshire’s Web site. “The percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.”
The value of shares Berkshire reported holding as of March 31 increased 23 percent in the second quarter. Berkshire is the largest shareholder in American Express Co., whose stock rose 71 percent in the three months ending June 30. Buffett’s firm is also the biggest investor in Wells Fargo & Co., which jumped 70 percent, Goldman Sachs Group Inc., which rose 39 percent, and Burlington Northern Santa Fe Corp., up by 22 percent.
Buffett, 78, didn’t respond to a request for comment left with assistant Carrie Kizer. He doesn’t provide a number for intrinsic value in his annual reports or other communications with shareholders.
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Berkshire’s book-value decline of 9.6 percent last year beat the 37 percent plunge of the Standard & Poor’s 500 Index, and the firm has outperformed the total return of the index in 38 of the 44 years Buffett has led the company, according to Berkshire’s own calculations. Under Buffett, Berkshire’s book value per share grew 362,319 percent through the end of last year, compared with 4,276 percent for the S&P, the firm said.

Markets Recover
The declines last year and in this year’s first quarter were fueled by drops in Berkshire’s own equity portfolio, and charges on derivatives tied to corporate defaults and stock indexes on three continents.
Since then, markets have reversed, helping both the equity derivatives and Berkshire’s own stock holdings. The gains in the existing stock portfolio, including warrants to buy shares of Goldman Sachs, and the reversal of losses for the equity contracts may have increased book value by 10 percent before results from operating units are factored in, Tongue said.
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Remarkable Turnaround’
“Some of the stocks had a remarkable turnaround,” said Janet Tavakoli, author of “Dear Mr. Buffett” and founder of Chicago-based advisory firm Tavakoli Structured Finance. “Combine that with the equity puts going up, and this will be a very interesting quarter.”
Berkshire’s own stock rose 3.8 percent in New York Stock Exchange composite trading in the quarter. It reached $100,000 on Aug. 3, the highest since January. Berkshire’s record closing price is $149,200 on Dec. 10, 2007.
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Berkshire’s equity puts -- the derivative contracts tied to stock markets -- were sold to undisclosed buyers for $4.9 billion, according to Buffett’s most recent letter to shareholders. Under the agreements, Berkshire must pay out if, on specific dates starting in 2019, four market indexes are below the point where they were when he made the deals. In the meantime, Berkshire can invest the cash and keep any profits.
The four indexes -- the S&P, the U.K.’s FTSE 100 Index, the Dow Jones Euro Stoxx 50 Index and Japan’s Nikkei 225 Stock Average -- would all have to fall to zero for Berkshire to be liable for the entire amount at risk. That figure was $35.5 billion as of March 31 and can move with currency valuations.

Derivative Liabilities
The $10.2 billion in liabilities on the derivatives, which pushed down book value in past quarters, will shrink after the indexes recovered in the second quarter, said Guy Spier, principal at New York-based hedge fund Aquamarine Funds LLC, which owns Berkshire shares. The liabilities are accounting losses, not cash that Berkshire has paid out.
“We’re going to have a huge reversal in the index puts -- just massive,” said Spier. “We can expect to see some substantial non-cash results.”
The S&P rose 15 percent in the quarter, while the Nikkei jumped 23 percent. The FTSE increased by 8.2 percent and the companies in the European Dow rose 16 percent. Quarter Book value Change from
prior quarter

1q09 $102.8 -5.9%
4q08 $109.3 -9.1%
3q08 $120.2 1.8%
2q08 $118.0 -1.2%
1q08 $119.4 -1.1%
4q07 $120.7 0.7%
3q07 $119.9 4.0%
2q07 $115.3 4.9%
1q07 $109.9 1.4%

34 comments:

Anonymous said...

"All his investment moves are disclosed"...not always. if i'm not wrong at one point he had an agreement with SEC to delay disclosure of his buyings as the new of him buying into something can have crazy effects on its price (e.g. look at China's BYD).

also, as much as possible he tries to keep (his plans) secret to avoid "coattailing"

anyway Lucky, i like your blog in the sense that it brings out social issues that deserves more attention, but i think sometimes there is too much "govt-bashing"...more analysis needs to be made to "their side" of argument too, without necessarily being suck-ups.

WL said...

Sadly, I have lost faith in the Government, especially in what they said.

LuckySingaporean said...

Much of Buffett moves are disclosed sometimes with delay if his is still accumulating stocks of a company. The problem is GIC does not reveal much. ex NMP Steve Chia asked the govt to consider releasing delayed reports and disclosure but this was denied.

As for 'govt bashing', I'm not into that. I'm point out things our govt does not do or deficiencies in various schemes/policies so that people are aware. If I do get my facts wrong, I'll be more than happy to remove them. I do not bash them for the sake of doing it.

Anonymous said...

Newater.....now need more land to grow vegetables. Next, we learn how to fish again. Back to Sang Nila Utama's time.

Taishan said...

Being secretive is the hallmark of incompetent and irresponsible leaders.

Anonymous said...

Lucky

Seriously ...

WARREN BUFFET WAS THE SINGLE (INDIVIDUAL) BIGGEST BENEFICIARY OF THE OBAMA BAILOUT.

U really think he is Santa Claus *snigger*

He was one of the BIGGEST player in the dervis (whom he call the weapons of mass destruction). He was selling stocks when asking every1 to buy.

His time horizon is hardly forever. maybe long term because he is in INSURANCE. i.e he takes premiums and invests in instruments that generates steady cashflow...

oh wait u are not really interested in facts ... me bad ...

Anonymous said...

... before u get too upset ... my point is that with Mdm Ho's capable leadership, u could throw a stone at Raffles Place and 99 out of 100 hit a random auntie\uncle who outperformed her.

No need to compare to Mr Buffet ...

Anonymous said...

Impossible!

The local media has always hinted that our SM is god's gift to Singaporeans.

There is no Singaporean or any human on earth who is the equal of our great SM.

If SM insists that his daughter-in-law and himself are better investors than Buffett, then they must be better investors!

LuckySingaporean said...

anon 17:34,

If Warren Buffett could anticipate what Obama was going to do, what's wrong with that. It is all part of investment to also read the political situation. Remember Shin Corp & Thaksin....that is what you get when you misread.

As for buffett being one of the biggest player of derivative. I think he hammered the people who bought those puts from him big time. The WMD was fired by him....I think when he said derivatives were WMD, it referred to people buying them to get leverage.

He did hold on to Geico, Coca cola, See's candy for several decades. Forever is a long time, he plans to hold them forever as long as they perform...just like people get married it is forever until someone screws up.

As for my interest in the truth, there is nothing more important that the truth .... If there is anything untrue in this posting please feel free to point it out and I'll remove it.

DanielXX said...

Warren Buffett is an evil man because he has put Temasek and GIC in a bad light.

Anonymous said...

Buffet is a bad man as he turned down an investment in a certain INVESTMENT BANK so that certain SWF can invest in.

Anonymous said...

That certain SWF got a 85 old man sitting on the board (an idiot in economic theory but score A+ for rubbing asses with communist China and Mynammar).

Anonymous said...

PAP and famiLee collectively face dunno throw where. Faster go die! pui!

Anonymous said...

With this latest result, how will Temasek's performance compare with Buffet? Previously Temasek claimed to outperform even Buffet.

Anonymous said...

@ to above..

Singaporean got short term memory or selective amnesia

Anonymous said...

I wonder anon @ 1418 and 1734 is KwayTeowMan..... : )

Anonymous said...

Read today's ST-- It should read "Ho Ching Vindicated too"

Anonymous said...

Stock market is rallying. Temasek made back most of their losses.

No wonder Ho Ching no need to step down liao!

Ho Ching and LKY are the best! Who on earth is Buffett? He got win President Scholar before or not?

Kaffein said...

I wonder why they put someone who has no experience in world markets, financial stocks and analysis to steer the helm of Temasek. Least to say, the ship has already hit an iceberg. That's what you usually get for employing your own family members, many a times these breakdowns and falls occur because of family ties.

Kaffein

Anonymous said...

They are not paying for their mistakes. The people are. Why should they care? They are still getting their million dollar salaries. At most, there is some lost of face. Even then ST will continue to praise their unequalled financial acumen. With everyone around them saying they are great why should they do any different? They have the best jobs in the world. Talk about iron rice bowl!

meepoking said...

Rather than lamenting about the hypocrisy going on behind the government. I agree that we as Singaporean Man especially, we should stand up and be strong. If we are not good enough, how to shoulder upon the responsibilities of our family and haha our woman population leh ?

We should stand strong and work hard. Throw aside all those sense of attachment of hope of betterment from our governemtn.

I believe that should we work hard enough we will strive and prosper in our own land. OUR LAND!

Anonymous said...

@Lucky 18:49

Buffet did not anticipate. He LOBBIED.
He has Obama in his pocket.
In fact, he has BOTH donkeys and elephants in his pockets.
And the SEC too.

He was not too many points away from being outperformed by Mdm Ho.
The point is many of the richest today .. (with the possible exception of entrepreneurs like Bill Gates) got rich the same way. By playing with different rules.
Unfortunately for us, Mdm Ho is incredibly unlucky(to be polite).

Pls judge by what they did and not what they say.

Anonymous said...

"The point is many of the richest today .. (with the possible exception of entrepreneurs like Bill Gates) got rich the same way. By playing with different rules.
Unfortunately for us, Mdm Ho is incredibly unlucky(to be polite)."

So what stopping Mdm Ho from playing with different rules after all the familee has the greatest of kangaroo rules and government investment secrecy ever known in this earth ?

furrybrowndog said...

@Anon 18:49

It's true that Buffett pushed for TARP to pass. However, this is also the same man who endorsed a second stimulus package, compared to Obama who argued that the first one needed more time to work. In other words, Buffett was recommending something he felt was good for the economy as a whole rather than lobbying for his own personal gain.

In my opinion, TARP was something of a necessary evil. I would have preferred if the conditions and oversight of TARP were made much more stringent than it turned out to be, and I personally supported nationalization along with the bailout. But the fact was that if financial giants on Wall St. were allowed to fail we would have seen the collapse of the financial system as we knew it, not just Berkshire Hathaway.

Anonymous said...

MM Lee is no Buffett. MM Lee is a master politician, but only in Singapore.

That's why he is still needed as mentor. To ensure 50% walkovers, 66% mandate and 98% seats at every election.

Once this is achieved, everything also can what, right? Isn't he a master?

Anonymous said...

I believe anon @1418, 1534 and 1849 seemed to be the same person. Perhaps you may want to read between the lines........

Your 'line' of putting down Lucky's article and argument seemed to stem from basis that Buffett is no angel and no saint either.

Well, I think that is precisely the point that Lucky is trying to make. Buffett is a private investor accountable to many private shareholders. However, his only sole accountability to the private shareholders is to ensure that their money is well-invested and earns a profit. In that case, Buffett has always been (on the surface) pretty open and transparent about his investments and takes responsibility if he makes a mistake.

Now, let's look at the current situation in Singapore. Temasek and GIC (on the surface) are supposed to be private companies, but where they got their funds from. Maybe they can come up and say that the funds they used to invest do not belong to the common Singaporeans, then we can shut up and stop comparing the performances of these entities and the rest of the world. By being so secretive and having undeniable links to the government, you cannot help but wonder whether the taxes and other things you are paying as a result of their policies, are really for the nation causes. If that is the case, don't you think that government needs to improve on its accountability in this area.

When I read Lucky's article, my own interpretation is that a private investor can serve up the basic accountability to his shareholders. Then, how about us, as stakeholders of the nation? Unless like I mentioned before, if Temasek and GIC can come up and shut us up and say that they are not using the money from us.

Right now, the feeling (at least from most of us here) is that the government has not been transparent, has not shown awareness of the social issues at hand and the objectives of their policies are baffling (at least to us lesser mortals) at best. That is the crux and intention of Lucky Blog, which has been quite consistent in his views ever since I came to this blog.

So the conclusion from your comments, I gather is more of a nitpicking of Lucky's articles and has not shown in depth analysis of the issues at hand. Do I need to tell everybody has their own agenda and self-interests? Of course, there isn't one person on this earth (save for a few) who does things out of altruisms and of noble ideals. Heck, even the ruling government acknowledges this (with their super sky-high salaries). The point is that basic, necessary measures must be in place if you say that your government is a meritocratic and democratic country. For example, you go into restaurant, what is the most thing you expect for a restaurant? For me, the least basic thing is cleanliness on the cutlery. For course, some people might have different views and expectations. That is the reason for the existence of Lucky's blog which have some followers because his views are enlightening and strike a chord with many of us. Of course, you are welcome to give your views, but I think you probably need to be a tad more in-depth and convincing in your arguments......

Anonymous said...

anon @ 1751

That is precisly what the government wants. Anyway, to me, 'working hard' is something og a 'given' to me and can be prone to misuse. The reason being that it is quite subjective to say whether you are working hard or not. For many of us, lesser mortals, I guess there isn't too much what you can do, except working hard and finding opportunities to better our current situation. It is almost 'natural'. Maybe there is a lot of lamentings and so called 'complaints' that you see here. I would consider these to be the little voices in life, desperate to be heard or at least offer an outlet to voice our opinions and find fellow 'comrades' because we are all Singaporeans or 'think-alikes'. Thus it offers much gratification to know that you are not alone.

The government, in my opinion, is very important to all of us. From the beginnings of ancient civilizations to modern ones, it stands an important purpose and is the sole primary reason for the progression of people. (Just look at the histories) There is somebody who seems to suggest that a certain individual can manipulate and influence an entire cabinet plus a very capable and seemed to be opinionated president of the most powerful country in the world. The thing is that for influence and manipulation of a greater scale, the government is the most powerful and influential of all. That is why, ideally, we should have a system in place with a series of steps and measures to ensure checks and balances, accountability and last and most important of all, serve the greater good because history has shown that people tend to be self-centred and selfish. The government, ideally, serves an entity and not as group of individuals. Before Qin Shih-huang ruled China, merchants and traders' influence on the government wer great. When he came into power, merchants and traders's status and positions in the society was greatly undermined. What I am suggesting that a society that hugely hinges on the economic aspects will not become strong, however, that is not to say that Qin Shih-huang type of goverment is the model to emulate. What I meant that in order to conquer the whole of China, the first thing was to get rid of the traders and merchants influence. A civilization goes through many upheavals and since that most countries settle on the democratic model (giving power to the people), that means we have more to lose if anything goes wrong.

Recently, I watched the re-runs about the corrupted policeman (Lei Ruo), realised that there is a fine line between corruption and taxes and fees. Lei Ruo implemented a systematic way of collecting bribes and fees and did not like the chaotic ways of corruption by his predecessors. The end result of his way of doing things was very 'satisfying'; controlled prostitution and drugs, no infighting between triads, his charges were happy because they earned more, trades were able to flow.....

Sounds familiar..... : )

furrybrowndog said...

Anon 8:28 makes some very good points. Can you imagine how Berkshire's shareholders would react if Buffett resorted to Tharman-style disingenuity in making apples-to-oranges comparison in defending Berkshire's performance?

What's particularly ironic is that Tharman's MoF is the sole shareholder of Temasek, and only in Singapore would you ever see a majority shareholder defend the flailing performance of a company with selective statistics.

LuckySingaporean said...

anons,

Lets keep things simple. Would we be happier if Warren Buffett manages our reserves with his level of skill, integrity, transparency, responsibility, accountability and disclosure....or not? If the answer is yes, certainly there is something to be learnt from the old sage. The problem is Temasek and Berkshire are worlds apart.

Anonymous said...

corrupted policeman (Lei Ruo)

I like the theme music, it is a nice movie, got two parts, by Andy Lau.

Initially he refuses to be a corrupt policeman but later still become for some reasons.

After Hong Kong Police set up the ICAC, he has to stop all the corruption and emigrate to Canada.

Anonymous said...

Read this link

http://www.thesmartasset.com/2009/08/how_buffett_was_bailed_out_--.php

Anonymous said...

@Lucky

Buffet is transparent to the extent required by SEC ... cos Berkshire is a LISTED COMPANY.

My point is ... any random aunty\uncle could probably outperform Mdm Ho. Because her KPI is not really to make money!

Of course Buffet is better and integrity is important. But given a choice, I would certainly choose random Mr Lucky Tan *for example* over Buffet to run Temasick.

And of course I am nitpicking ... but I dun like hypocrites like Buffet.

@furrybrowndog

He was lobbying because he was facing the prospect of margin calls. Do u know what that means for some1 like him?

And finally Tar-man was brought in to fix the shit. Look around u. He did fine. He is unfortunately not the Messiah. He cant rise from the dead and it would be dangerous for him to mock the daughter-in-law of the one who apparently can.

furrybrowndog said...

Dear Anon 18:47,

You are completely ignoring the points I made earlier. Would you have instead preferred to see the collapse of the financial system as we know it? When that happens, it won't be just Buffett who would lose big time. Consumer and business financiers would go down as well, and you can expect GDP to contract at a much sharper pace. Buffett benefited from the bailout, as did every other American investor. On a an interesting note, Temasek's stake in Merrill Lynch was also bailed out when BofA bought out the ailing investment bank.

Please see this comment in response to Rolfe Winkler's hit piece on Buffett in case you're incredibly dense and still don't get it.

And no, the SEC does not mandate that CEOs like Buffett have to stand in front of his investors, admit that he screwed up (he used the word "dumb" to describe some his investments) before providing details of losses:
Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.

Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008.

Buffett said he did not anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.

Buffett says he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he has had to write down the value of those purchases to $27 million.


And finally, Tharman was not brought in to "fix the shit". Where did you even get that ridiculous idea from? Since when was he on the board of Temasek? And don't be silly. How exactly does looking around myself help to discern the true extent of losses of Temasek Holdings? Tharman did not disclose the exact losses Temasek made by selling BofA and Barclays. If these losses were inscribed onto walls and vandalised onto public property around me, I would have noticed them a long time ago. As a majority and sole shareholder of Temasek, as well as the head of ministry which manges Singapore's finances, isn't it his job to demand answers to such things?

Leather Diaries said...

Interesting!

Thanks for sharing.