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» Kirk - Bill Gates elected to Berkshire Hathaway board

http://www.usatoday.com/money/companies/...

From wire reports

The world's wealthiest man has joined the board of an investment company owned by the world's second wealthiest.

The board of billionaire Warren Buffett's Berkshire Hathaway voted Tuesday to elect Microsoft founder Bill Gates to fill the current vacancy left by the July death of Buffett's wife, Susan.

Gates has long been a shareholder in the company and is a friend of Buffett's. The two frequently play bridge together.

Buffett, who owns about 31% of Berkshire's stock, was not available for comment Tuesday, his spokeswoman said.

The move keeps Berkshire's board at 11 members and further bolsters its independence. Only two years ago, Berkshire's board had seven members, with only three that would be considered independent.

Buffett has since moved to appoint new directors to counter criticism from corporate governance watchdogs.

The primary job of the Berkshire board is to find a successor to Buffett, 74. Buffett has said there are four internal candidates to succeed him, although the names of the candidates has not been made public.

Gates ceded the chief executive job at Microsoft to college pal Steve Ballmer nearly five years ago and now spends a majority of his time at the company on software development and research as Chief Software Architect.

In addition to serving as Microsoft's chairman, Gates sits on the board of Seattle-area biotechnology company Icos Corp. and is also the founder and owner of photography provider CoRBI Corp.

Gates is also actively involved in his charitable organization, the Bill & Melinda Gates Foundation, the world's biggest charitable foundation with an endowment of $27 billion.

In addition to Gates, Berkshire's board now consists of Buffett himself; Berkshire vice chairman Charles Munger; Buffett's son Howard Buffett; long-standing Berkshire owner Malcolm Chace; David Gottesman of investment adviser First Manhattan Co.; Charlotte Guyman, associated with UW Medicine, an academic medical center; former Coca-Cola Co. executive Donald Keough; Thomas Murphy, former chairman of Capital Cities/ABC; Ronald Olson, a partner at Munger's law firm; and Walter Scott, Chairman of Level 3 Communications Inc..

The job of Berkshire director is not a money-spinner. Berkshire pays directors $900 a meeting plus expenses, or $300 for a teleconference. Its three audit committee members get another $1,000 a quarter.

The job is also risky, as Buffett refuses to buy directors' and officers' liability insurance for the board, which most companies use to shield directors from lawsuits.

Berkshire owns businesses and stock in a wide variety of industries, including insurance, furniture, restaurants, candy and newspapers.

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-- posted by Kirk

» axolotl - Re: Bill Gates elected to Berkshire Hathaway board

-- posted by axolotl

» Kirk - Re: Re: Bill Gates elected to Berkshire Hathaway board

Good point.

I heard you pay about a 20% premium over the market value of what Buffett holds to have him manage your money for you.

If Warren can keep at it for another 10 years, it is like paying a money manager 2% a year if you assume the premium will vanish when he retires or dies. If he has a clogged artery from eating Sees Candy then your premium would be even higher. Still, most who love him have found he does better wtih their money than on their own and the premium vanishing would be like a tax I guess.
He does many things now that you can't do as an individual unless you are a very, very rich individual (such as buy distressed bonds of WCOM type failures so he could get the assets when they defaulted on the bonds.) That might be well worth the premium if he stays around for another 10 years.... but I'm not going to risk it.

-- posted by Kirk

» Normxxx - Re: Re: Bill Gates elected to Berkshire Hathaway board

For the moment, he seems to believe that all assets are overpriced, and he has gone increasingly to cash-- especially in non-$US. This had a heavy influence on his returns last year. Well, he is making a big bet, but I would hardly like to bet against him. But, if that's not market timing, I don't know what is!

-- posted by Normxxx

» axolotl - Re: Re: Re: Bill Gates elected to Berkshire Hathaway board

-- posted by axolotl

» Normxxx - axolotl: Another View of BRKA.

axolotl: Here's another view of BRKA.

Buffet's Second-Class Buffet
Disney's return on equity outshines Berkshire Hathaway's. So why did Eisner get the boot?

By Gary C. Byrne And Silas E. Byrne | Monday, December 27, 2004

MICHAEL EISNER OF WALT DISNEY may be the most reviled and Warren Buffett of Berkshire Hathaway the most admired CEOs in American business this year. But whose company produces better returns on shareholder equity? Last spring, Eisner was removed as Disney's chairman of the board when more than 40% of shareholders voted against his re-election to the board. Meanwhile, shareholders re-elected Buffett to Berkshire Hathaway's board of directors as the financial press reported details of his comments to an audience convinced of his financial wizardry and panoramic vision for the future. But whose company has been producing better returns on shareholder equity?

Disney's average return on shareholder equity has been 50% higher than Berkshire's since 1997. ROE takes on special significance in this comparison when it is noted that Berkshire Hathaway has never paid a stockholder dividend. A company that doesn't pay a dividend needs to grow at a faster rate than a dividend-payer to maintain its value to investors. Since 1997, Berkshire Hathaway has produced an average return on shareholder equity 25% lower than the yield on AAA corporate bonds.

Although Berkshire Hathaway started out as an operating company, it became famous when it began purchasing equity stakes in such high-quality companies as American Express, Coca Cola, Gillette, Wells Fargo, Moody's and the Washington Post. During this period, Berkshire's leadership believed there was better value in owning shares of companies than in owning and operating entire enterprises. As time passed, however, Berkshire changed its corporate mind and began to see better values in owning companies outright. At that point, it began to morph from an investment company into an old fashioned conglomerate. Now it operates 40 companies in sectors as diverse as flight services, building products, energy, household products, finance, insurance, manufactured housing, apparel, jewelry and furniture retail, candy manufacturing and distribution, and fast food. In fact, Berkshire now runs companies in nearly every economic sector except technology.

Conglomerates with a wide spectrum of investments are usually at a disadvantage relative to companies with highly focused strategic planning. While most companies are focused on products in a single area, conglomerates like Berkshire need expertise across a wide range of industries and skills. Berkshire must be capable of picking companies that can successfully compete in fields as diverse as selling soft ice cream and leasing aircraft.

Another problem: Berkshire apparently believes that any company purchased cheaply enough can be operated profitably. Only rarely have top companies been purchased as investments, so Berkshire has become a buffet of second-class businesses.

Berkshire has long maintained that it can purchase companies quickly and efficiently by analyzing a company's operating statistics and management. This belief in its ability to size up and purchase businesses without undertaking the traditional due diligence is surprising indeed. Berkshire's management claims to be so effective in this evaluative process that expertise in the specific industry is irrelevant.

Berkshire now boasts a collection of diverse businesses that over the past seven years have produced an average return on shareholder equity of 5.4%, compared with Disney's 7.8%. What these companies appear to have in common is that, taken together, they are a surprisingly poor-performing lot.

Eisner's Disney empire also consists of multiple segments, but at least Disney has the look of a company built around a strategic plan. It is composed of theme parks, media, retail, sports entertainment, movie production, and cruise lines that can fit together logically. Heaven only knows how Berkshire's Fruit of the Loom, Dairy Queen and Netjets fit into a master plan.

To see how a modern conglomerate is run, Berkshire might well look to General Electric, a corporation that owns operating companies in aircraft-engine manufacturing, media and entertainment (NBC and Universal Studios), medical systems, locomotives, lighting, plastics, power systems and a variety of financial services. Over the past 20 years, GE has focused its sights on and purchased the number one or number two company in each sector it enters, adding strong companies to the critical mass that already exists in its corporate inventory.

GE and Berkshire Hathaway have nearly equal shareholder equity levels, approximately $80 billion each, as of the end of 2003. But while Berkshire showed a profit of $8 billion for 2003, GE's profit for the same period was a whopping $15.5 billion, nearly double Berkshire's. During the past seven years, GE has produced an average ROE of 23.9%, dwarfing Berkshire's 5.4%. In addition, GE pays a dividend of between 40% and 50% of the company's profits. Payment of a dividend has the effect of slowing GE's increase in book value, yet GE's book value per share has still grown nearly 20% faster than Berkshire's over the past seven years.

The mystery is how Berkshire Hathaway's stock has managed to hold its value, despite company underperformance for seven years. Perhaps individual stockholders, having bought into the Buffett mystique, prize their costly stock (currently around $89,000 per A share) as an exclusive club-membership card.

Institutions, on the other hand, must report to their governing bodies and could be less tolerant of marginal performance and more willing to cut their losses. Disney and GE both have institutional ownership of more than 50% of their stock. In the late 1990s, both companies achieved unusually high price-earnings ratios, but then dropped more than 50% from their highs and have stayed at subdued prices ever since. Meanwhile, Berkshire's stock avoided a dramatic drop and has remained relatively steady in its climb upward; it reached its all-time high in the early spring of $95,700.

As a consequence of losing roughly 50% of their stock valuations over the past few years, both GE and Disney are now selling at price-earnings ratios similar to that of Berkshire Hathaway. This, despite the expectations of analysts that GE and Disney will both increase earnings over the next four years at least 50% faster than Berkshire. The questions about Berkshire's direction and valuation ought to increase as the leadership nears retirement and the stock hovers at P/E to growth levels not typically seen since the late 1990s bubble.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

» Normxxx - Another Dollar Bear

By Robert Lenzner and Daniel Kruger , 01.10.05

Warren Buffett's vote of no confidence in U.S. fiscal policies is up to $20 billion. The dollar has fallen savagely against the euro for the past three years, and the trade deficit is running $55 billion a month. Is the currency rout over? Can the trade deficit be fixed with a rise in interest rates or an upward revaluation of the Chinese currency? Warren Buffett, the world's most visible dollar bear, says the answer to both these questions is no. His bet against the dollar, reported at $12 billion in his last annual report (for Dec. 31, 2003), has gotten all the bigger. Now his Berkshire Hathaway has a $20 billion bet in favor of the euro, the pound and six other foreign currencies.

Buffett has for a long time been lecturing fellow Americans about their bad habit of borrowing from abroad to live well today. He made a big stink about his currency trades in his March 2004 letter to shareholders. FORBES phoned him recently for an update, hoping for the news that the Scold of Omaha had softened his views on the decline of the dollar. What we got was more doom and gloom, more than we have ever heard from the man. In other words, he is not about to cover his short position on the dollar.

Buffett said that he began buying foreign currency forward contracts when the euro was worth 86 U.S. cents, and kept buying until the price reached $1.20. It's now worth $1.33. Buffett said he is not adding new positions now but has been rolling over contracts as they mature. Berkshire lost $205 million on currency speculations in the first half of 2004, but more than made that back with a $412 million gain in the third quarter. It's likely that the December quarter report will show another huge gain.

Since January 2002 the dollar has fallen 33% against the euro. Buffett blames that on bad policy, coming from both the White House and Congress. It does appear that forex speculators are no big fans of George Bush or his Treasury secretary, John Snow. Since Nov. 2 the dollar has fallen 4.4% against the euro.

Says Buffett: "The rest of the world owns $10 trillion of us, or $3 trillion net." That is, U.S. claims on foreign assets run to only $7 trillion. "If lots of people try to leave the market, we'll have chaos because they won't get through the door." In a nutshell, the trade deficit is forcing foreign central banks to ingest U.S. currency at a rate approaching $2 billion a day. Buffett continues: "If we have the same policies, the dollar will go down."

The $20 billion bet has to be put in context. Berkshire has a huge portfolio of investments that includes $40 billion of Treasury securities. Budget and trade deficits are likely to make dollars worth less and bonds worth less. So the currency play is a partial hedge of a large position that can be read as bullish on the U.S.

Still, that Buffett is making a currency bet at all is striking given that this investor has, in his 74 years, rarely made macroeconomic bets. He built Berkshire to a $130 billion market value by acquiring parts or all of lots of businesses, primarily in the insurance sector and primarily in the U.S. Now some of those assets are antidollar assets. Example: In 2002 he bought bonds of Level 3, a telecom company, that were denominated in euros. In 2000 Berkshire picked up MidAmerican Energy, a gas pipeline company. By doing so, Berkshire indirectly acquired the assets of Northern Electric, a utility in England, at a time when the pound was worth $1.58. Now it's worth $1.94, so Berkshire has a paper gain irrespective of any appreciation in the electric company's pound-denominated earning power.

A continuing fall in the dollar "could cause major disruptions in financial markets. There could be unpredictable side effects. It could be precipitated by some exogenous event like a Long-Term Capital Management," Buffett says, referring to the 1998 collapse of a steeply leveraged hedge fund.

How about a soft landing for our deficit-addicted economy? Don't count on it. We're running $100 billion a year in the hole against China, but Buffett doesn't expect that an upward revaluation of the renminbi (stoutly resisted, in any event, by the Chinese government) would greatly reduce this number.

How about a rise in short-term interest rates? They used to say on Wall Street, "Six percent interest will draw money from the moon." Buffett is skeptical, though, that the recent tightening by Fed Chairman Alan Greenspan will do much more than "put off the day of reckoning."

Nor does Buffett support the notion that intervention in the currency markets by one or another central bank can overcome the momentum of a currency that's losing value. "Sooner or later markets win over the intervenors. The intervenors always run out of gas," says Buffett.

What is absolutely necessary to bolster the dollar is "a public policy that brings imports and exports together." Buffett has proposed a grand scheme to force imports and exports into perfect balance by demanding that each dollar of imports be accompanied by a certificate bought from an exporter who moved a dollar the other way. He concedes, using the self-deprecating humor for which he is known, that this scheme has met with deafening silence from policymakers.

Moving beyond cloudland to economic history, Buffett reflects wistfully on the writings of David Ricardo, the 19th-century trade theorist: "In those days the trade imbalances got settled in gold--and when they ran out of gold, people stopped doing business with you." A gold standard? More wishful thinking. But Buffett is no goldbug. It's more that he's an antidollar bug. In dollar terms, gold, copper and oil have all climbed in the past several years; in euros, not so sharply.

So, Warren, what are you buying now? And what's your prediction for the dollar next year? His answers, respectively: No comment, and I'm not making one.

But here's a long-term perspective. He says he may hold foreign currencies "for years and years." And he says that the electorate of the U.S. may be strongly tempted to get out of hock by inflating away the country's dollar debts.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

» axolotl - Re: Another Dollar Bear

-- posted by axolotl

» Normxxx - Spitzer vs Buffet: round I

The report said the request seeks information about its sales of a type of insurance that can help companies smooth out earnings.

In late December, Berkshire (BRK.A: news, chart, profile) said the U.S. Securities and Exchange Commission had asked for information about its sales of the same type of products.

Regulators are trying to find out whether the products help firms improperly smooth earnings and bolster capital. Critics contend that the complex transactions can sometimes involve limited transfer of risk, making them look more like loans than insurance.

Berkshire said it and its unit General Re, also mentioned in the subpoena, will cooperate with the inquiry, the report added.

Berkshire is the latest insurer to be asked for information on nontraditional insurance, which is also known as finite insurance or reinsurance.

American International Group (AIG: news, chart, profile) the world's largest insurer, had to pay $126 million in November to settle investigations by the SEC and Department of Justice into its sales of finite insurance and reinsurance.

Berkshire shares rose $492 to $86,192 on Thursday.

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx

» Kirk - Buffett says dollar to continue to fall

Warren Buffett, the billionaire investor who has bet against the U.S. dollar since 2002, said the country's trade gap will further weaken the currency.

"Unless we have a major change in trade policies, I don't see how the dollar avoids going down," Buffett, 74, said in an interview with CNBC Wednesday. "I don't have any idea if it's going to be this month, next month or next year."

However, on Wednesday the dollar strengthened against the euro, which dropped below the $1.30 mark in afternoon trading, as dealers considered data that showed an expanding economy

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                  Kirk  S&P500  NASDAQ  BRKA
2YR: 12/31/2002   +69%   +41%    +63%   +23%
4YR: 12/31/2000   +35%    -3%    -12%   +26%
6YR: 12/31/1998  +160%     7%     -1%   +27%

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-- posted by Kirk