WEB:The Oracle of Omaha- Warren Buffett

Top 222. Mar 8, 2005 7:45 AM

» bob90245 - Buffet on Index Funds

Excerpt from the Berkshire Hathaway 2004 Annual Report:

Over the [last] 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.
There have been three primary causes: first, high costs, usually because investors traded excessively or spent far too much on investment management; second, portfolio decisions based on tips and fads rather than on thoughtful, quantified evaluation of businesses; and third, a start-and-stop approach to the market marked by untimely entries (after an advance has been long underway) and exits (after periods of stagnation or decline). Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.

-- posted by bob90245

Top 223. Mar 8, 2005 9:08 AM

» Kirk - David Korn on Warren Buffett

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David had a nice write-up of Warren Buffett in his newsletter this weekend. Below is what he said about Buffett.

THE ORACLE OF OMAHA
As you know, I keep tabs on Warren Buffet who is arguably the greatest living investor. This weekend, Buffet's company Berkshire Hathaway released its 2004 annual report. In his letter to shareholders, Buffet said he had hoped to make several multibillion dollar acquisitions last year, but "struck out" since he found very few attractive securities to buy. As a result, Berkshire ended the year with $43 billion of cash equivalents. That's a lot of dry powder.
I was also curious to see if Buffet was still betting on the U.S. dollar's decline, and low and behold, he actually increased his bet against the dollar and now has $21.4 billion spread across 12 foreign currencies. It bears noting that prior to March 2002, neither Berkshire nor Buffet had ever traded in currencies. What prompted the change? According to Buffet, "[T]he evidence grows that our trade policies will put unremitting pressure on the dollar for many years to come..." Buffet did express some apprehension over his position saying he is less confident in his bet today because "so many pundits predict weakness for the dollar." I like that -- Buffet is a bit of a contrarian.
Are you curious as to Mr. Buffet's stock holdings? In terms of market capitalization, here is the order of his top 10 common stock investments: (1) American Express Company; (2) The Coca-Cola Company; (3) The Gillette Company; (4) H&R Block; (5) M&T Bank Corp; (6) Moody's Corporation; (7) PetroChina "H" Shares; (8) The Washington Post Company; (9) Wells Fargo & Company; and, (10) White Mountains Insurance. (Berkshire is the biggest shareholder of Coke and Gillette).
Read the 2004 Berkhire Hathaway Inc. Annual Report and most definitely Chairman Warren Buffet's Letter to Shareholders that starts on page 3 at the following link:
http://berkshirehathaway.com/2004ar/2004...

Bob Brinker showed up to helm the Starship Moneytalk this weekend, despite the fact that his newsletter went out last week. I wasn't planning on doing an Interpretation, but I think it was an important weekend in that for the first time, Bob explored the possibility of a bubble in the real estate market. Read on...

To get a free sample of David’s newsletter, visit this site and follow the instructions to get on the mailing list.

-- posted by Kirk

Top 224. Mar 8, 2005 11:03 AM

» arommel88 - Re: David Korn on Warren Buffett

In response to David Korn on Warren Buffett posted by Kirk:

I heard some of his show. One caller said his wife wants to mortage off their house to buy undeveloped property. He said he never had calls like this until recently.

-- posted by arommel88

Top 225. Mar 30, 2005 6:54 AM

» Kirk - Buffett 'told of suspect AIG deal'

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Buffett 'told of suspect AIG deal'

Wednesday, March 30, 2005 Posted: 8:14 AM EST (1314 GMT)
http://www.cnn.com/2005/BUSINESS/03/30/b...

NEW YORK (Reuters) -- Warren Buffett, chairman of Berkshire Hathaway, was told briefly in advance about a transaction his corporation's General Re unit made with American International Group that is now at the center of a regulatory investigation, The Wall Street Journal reported on Wednesday.

The Journal's report, citing an unnamed person familiar with the matter, comes after Berkshire's statement on Tuesday that Buffett was "not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions."

Berkshire did not make clear what exactly Buffett was told, if anything, about the AIG deal.

Buffett believed the reinsurance transaction -- or transactions, as Berkshire refers to the complex AIG deal -- could be done properly, the Journal reported.

AIG and Berkshire Hathaway did not immediately return calls seeking comment.

Berkshire Hathaway said earlier in a statement its chairman never received detailed briefings on the deal between the company's General Re unit and American International Group, denying recent press accounts about his role in the arrangement.

"Mr. Buffett was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions," the statement said.

Buffett, as well as former AIG chairman Maurice Greenberg, are scheduled to answer questions on the deal by investigating authorities shortly.

The 2000 transaction was initiated by Greenberg, then AIG's chief executive. It is one focus of an investigation of insurance products that regulators believe may have been used by companies to improperly boost their financial positions.

-- posted by Kirk

http://www.usatoday.com/money/perfi/insu...

Top 226. Mar 30, 2005 7:00 AM

» Kirk - Buffett denies knowledge of disputed AIG deal

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Buffett denies knowledge of disputed AIG deal

Posted 3/30/2005 2:31 AM Updated 3/30/2005 2:46 AM

By Greg Farrell, USA TODAY
NEW YORK — Reacting to a growing storm of negative publicity surrounding one of his insurance companies, billionaire investor Warren Buffett issued a statement Tuesday declaring that he had no knowledge of a controversial transaction five years ago that led to the ouster of Maurice Greenberg as chairman and CEO of industry giant American International Group (AIG).

A statement from Berkshire Hathaway (BRKA), a holding company that controls General Re, denied media accounts that Buffett, its CEO, had been briefed on the "nature" and "structure" of a transaction five years ago between his company and AIG that helped bolster AIG's financial standing at the time. (USA TODAY did not publish the accounts.)

AP file
Buffet

The statement noted that executives from Berkshire Hathaway and General Re were cooperating with various investigations into the transaction, and that Buffett himself would grant an interview to investigators. The statement went on to say Berkshire Hathaway does not expect to make any restatement of its financial reports as a result of the probe into the 2000 transaction. (Related: Buffett maintains respect of fellow CEOs)

The Securities and Exchange Commission, New York State Attorney General Eliot Spitzer and the New York Insurance Department began looking into the General Re transaction to determine whether AIG had entered into a riskless transaction designed solely to improve its financial statements.

That investigation eventually grew into a probe of 10 transactions between AIG and various offshore insurance companies. Regulators are trying to determine whether some of the offshore entities, including Richmond Insurance and Union Excess, are independent or controlled by AIG.

As his role in the General Re transaction became apparent, Greenberg had to decide whether to cooperate with the investigation or step down. Two weeks ago, he quit as CEO, and Monday evening, he told AIG's board that he would resign as chairman, effective this week.

AIG's stock has rebounded from its recent decline.

-- posted by Kirk

Top 227. Mar 30, 2005 7:12 AM

» Kirk - Buffett's Weak Defense

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Detox
Buffett's Weak Defense
By Peter Eavis
Senior Columnist
3/30/2005 8:14 AM EST
URL: http://www.thestreet.com/comment/detox/1...

Updated from 7:11 a.m. EST

This can't be Warren Buffett's best defense.

Berkshire Hathaway (BRKA:NYSE) , of which Buffett is CEO, is being targeted by regulators because its insurance subsidiaries have been involved in deals that look like they were designed to give an artificial boost to the financial statements of other companies.

Tuesday, Berkshire released a statement disputing details of recent press coverage of the deals. The Berkshire release also commented on a reinsurance deal that General Re, one of its subsidiaries, did with American International Group (AIG:NYSE) in 2000. The reinsurance transaction is currently being investigated by New York Attorney General Eliot Spitzer and the Securities and Exchange Commission.

The plot thickened Wednesday when AIG conceded the deal shouldn't have been treated as an insurance transaction. For that story, click here.

Buffett rarely gives interviews to the press and almost never responds to criticism of his company with a press release like this. As a result, Berkshire fans were hoping this communication would win back some ground for Buffett.

But Tuesday's response from Berkshire should come as a big disappointment to the legions of investors, small and large, who have held up the billionaire Buffett as a model investor and a clean corporate citizen.

The painfully careful wording and the narrow focus of the release suggest that Berkshire isn't able to mount a wide-ranging and robust defense of the reinsurance policies being probed. It also shows that Berkshire now realizes that Buffett's position as CEO could be threatened.

Berkshire stock rose $200 to $87,000 Tuesday.

The most important part of the release is the comment on the AIG deals, which are being probed to see whether they were done simply to give an artificial boost to AIG's financial statements. A Wall Street Journal report said Tuesday that Buffett is scheduled to be interviewed by the SEC and Spitzer's office on April 11. Citing an unnamed source, the article added that the regulators have "documents and witnesses that they believe indicate [Buffett] was involved early on in discussions about the transaction between General Re and AIG, including its structure."

On Tuesday, Berkshire retorted in its press statement, "To the contrary, Mr. Buffett was not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions."

But the wording of that statement is too oblique and weak to give anyone any solid assurance that Buffett had nothing to do with the AIG transaction.

First off, Buffett could have taken the opportunity to say that the company has found absolutely nothing wrong with the AIG deal. That, conspicuously, didn't happen -- and would seem even less likely to after AIG's admissions Wednesday.

Next best would have been some sort of statement indicating that Buffett had no knowledge of the structure or nature of the deals until they were reported on by the press earlier this year.

The issue here isn't when Buffett came to know of the deal's details, but whether he knew them at any time. Even if Buffett came to know the details of the AIG transaction after it was set up, he should have ordered that it be terminated immediately, if it were found to have anything improper in it.

The other parts of the release do nothing to bolster Berkshire's case. In disputing a March 28 New York Times article, it says that a Berkshire subsidiary National Indemnity didn't use a "side letter" in a Berkshire reinsurance deal with an Australian insurance company called FAI in 1998. FAI used the reinsurance bought from Berkshire's National Indemnity to make its balance sheet look much healthier than it was in 1998, according to an Australian government report. FAI was acquired by HIH and its financial problems contributed to HIH's collapse and bankruptcy. Australian regulators are investigating the deal.

True, maybe a "side letter" wasn't used in the FAI deal. The Australian government report doesn't mention one existing in the final stages of the negotiations, though the possibility of using one was suggested early on. However, investors would be feeling a lot more confident if Berkshire had come out with a strongly worded response to the main findings of the New York Times' story, rather than a possible correction of one detail of the story.

Berkshire has had enough time to come clean on the FAI deal. The Australian government report -- which can be read here -- shows unequivocally how FAI used the reinsurance it bought from Berkshire to give a fake boost to its financial statements. Also, this column first raised the FAI deal in detail 18 months ago and Berkshire apparently hasn't seen fit to correct what allegedly happened with FAI.

Some observers have wondered whether the regulators have the will, guts or evidence to take on Buffett, given his much-revered status in the markets. But going by Tuesday's release from Berkshire, they have nothing to fear. Buffett's defense does not look very strong at all.

In keeping with TSC's editorial policy, Peter Eavis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send any to peter.eavis@thestreet.com.

-- posted by Kirk

Top 228. Mar 31, 2005 1:22 PM

» Normxxx - Buffett Isn't Investing; Why Should You?

Buffett Isn't Investing; Why Should You?

By Susan C. Walker | 31 March 2005

Here's the most under-asked question of the year so far: If Warren Buffett (search) isn't putting Berkshire Hathaway's money in stocks, can this be a good time for anyone else to do it?

Since 1965, Buffet has delivered an average annual gain of 21.9 percent (which averages 11.5 points more than the S&P 500's average annual 10.4 percent gain over the same period). With a track record like that, most investors should want to learn why today is different enough to keep Buffett on the sidelines.

In his letter to shareholders for the Berkshire Hathaway (search) 2004 annual report, he describes why the company is holding cash now:

"What Charlie [Munger, vice chairman] and I would like is a little action now. We don't enjoy sitting on $43 billion of cash equivalents that are earning paltry returns. Instead, we yearn to buy more fractional interests similar to those we now own or — better still — more large businesses outright. We will do either, however, only when purchases can be made at prices that offer us the prospect of a reasonable return on our investment."

In other words, Buffett thinks that stocks and the businesses his company might buy are tremendously overvalued. That's another way of saying the markets are pumped up, like a baseball player on steroids, even though they (players and the markets) don't want to admit it.

In fact, Buffett uses baseball imagery throughout his shareholder letter. When he writes about how Berkshire Hathaway's operating companies sent excess cash to company headquarters in Omaha, Neb., for him to deploy, he steps up to the plate and makes a public mea culpa:

"I didn't do that job very well last year. My hope was to make several multi-billion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out. Additionally, I found very few attractive securities to buy. ..."

In an odd parallel, it turns out that Buffett isn't the only big-time player sitting on cash. According to the most recent Outlook newsletter from Standard & Poor's, most of the companies in the S&P 500 (search) have been holding out on investors, too, by not paying out their usual percentage of dividends.

In a recent column, Mark Hulbert quotes from the S&P newsletter: "Companies in the S&P 500 are still sitting on a mountain of cash. We estimate that non-financial corporations in the index currently have about $602 billion in cash and cash equivalents on their balance sheets."

Let's see ... since Berkshire Hathaway isn't included in the S&P 500 index, we know that we can add another $43 billion to that $602-billion figure to get up to a minimum of $645 billion in cash that U.S. companies are sitting on. And the reason they have so much cash, according to S&P, is that S&P 500 companies are paying out only 32 percent of their earnings as dividends. That compares with a long-term average of 54 percent.

So, even if investors do buy an S&P 500 stock, they won't get the normal share of earnings back in their quarterly dividend checks. That partially explains why the current yield for the Dow Industrials at 2.3 percent (again, according to S&P) is still below the traditional 3-6 percent range of yields.

So, let's ask the question again: If Warren Buffett is holding cash, and if corporations are holding cash rather than paying dividends, what's a little old everyday investor supposed to do? Repeat after me: Hold onto your cash. Unless you want to watch your portfolio follow the market as it ... well, to put it delicately, as it becomes less overvalued.

Notice that Buffett is not investing in real estate, an all-too-tempting alternative for regular folks who have some money they would like to invest but who don't trust the stock markets. In fact, as the most recent issue of The Elliott Wave Financial Forecast points out, many people are "now captivated by the concept of easy wealth through real estate. … According to the National Association of Realtors, a stunning 25 percent of the 7.7 million homes sold in 2004 were purchased strictly as investments."

In the United States, though, even as investors in certain locales continue to flip homes at higher prices, some important indicators made telling turnarounds in January. Total U.S. home sales dropped dramatically by 9.7 percent from December 2004 to January 2005 (before revisions), even as median sales prices on new U.S. homes plunged 13% from $229,700 to $199,400. That decline in the median sales price is the largest one-month fall in the history of the data, which goes back to 1963. So it looks like the real estate market may not provide a safe place to run to in the future.

Back to one final baseball analogy from Buffett. While writing about performance for the year, Buffett describes the CEO of one of their insurance companies as a superstar: "His slugging percentage is right up there with Barry Bonds' because, like Barry, [he] will accept a walk rather than swing at a bad pitch."

Bonds may not be swinging for the bleachers this year due to injuries, but the Oracle of Omaha's lesson is still useful: Know when to swing at the markets and know when to lay off and take the intentional walk.

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

Top 229. Apr 3, 2005 8:32 AM

» Kirk - AIG fesses up

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As for Buffett, Spitzer's office has emphasized that the Oracle of Omaha, who will meet with the investigators the day before Greenberg, is a witness in the inquiry--not a target of it.

AIG fesses up

The mega-insurer admits to a slew of accounting no-nos, ensnaring Warren Buffett's Berkshire Hathaway

By James M. Pethokoukis and Marianne Lavelle
http://www.usnews.com/usnews/biztech/art...

When Enron was imploding, Wall Street wags loved to point out that the energy company's corporate logo--the now infamous crooked "E" --had a devilishly appropriate double meaning. Now in the case of business insurer American International Group, which last week revealed it had made some $1.7 billion worth of accounting errors during the past 14 years, there's a different literary device in play--irony. AIG's corporate slogan? "We Know Money."

Today, there's more than a bit of irony about such hubris, after the world's largest insurer made an extraordinary admission: An internal probe had uncovered a broad range of accounting improprieties that caused it to delay (for the second time) filing its 2004 annual report and may require the company to restate past financial results. In addition, AIG's legendary chairman, Maurice "Hank" Greenberg, said he was stepping aside just two weeks after relinquishing the title of chief executive. That initial resignation was prompted by investigations begun last month by the Securities and Exchange Commission and New York Attorney General Eliot Spitzer. Both are looking into AIG deals--Greenberg is scheduled to talk to prosecutors on April 12--that may have misled investors about the true state of the company's finances.

Attention getter. One transaction squarely in the cross hairs is a late-2000 deal between AIG and General Re, a subsidiary of Warren Buffett's Berkshire Hathaway. The deal made AIG's books look better at a time when analysts were raising questions about the insurer's finances. In that transaction, AIG took over $500 million in potential claims, known as a "loss portfolio," from General Re, along with about $500 million in premiums. One insurance company can legitimately transfer risk to another, but in this case, it appeared that AIG was assuming no risk. The company admitted in a press release that "in light of the lack of evidence of risk transfer, these transactions should not have been recorded as insurance."

And there may be more hits coming, the company acknowledges: "AIG cannot presently determine whether additional matters will be discovered or further adjustments will be required." On top of the General Re admission, which will result in a $250 million cut in AIG's loss reserves, the company said that more than a decade of transactions worth $1.1 billion with Union Excess Reinsurance Co. were improperly accounted for. The Barbados-based insurer was incorrectly treated as an independent company since its ownership is closely linked to Starr International, a private offshore company that owns 12 percent of AIG stock and whose board is filled with current and former AIG executives.

Although still sporting a hefty $133 billion market capitalization, AIG has lost nearly $60 billion in value since the brouhaha began, including an 8.4 percent drop last week. Little wonder investors are disappointed. AIG's reputation was always a Steady-Eddy, blue-chip performer. "I'm just not sure where this is all heading," says David Anthony, an analyst with Argus Research. "I don't know what else the company will find."

Certainly the bond rating agencies have seen more than enough. Both Moody's Investor Service and Standard & Poor's have cut AIG's formerly AAA debt rating. If the worst of the news is out, the stellar ratings could eventually be restored. Many investors are betting that's indeed the case. After all, the decline has been far from a collapse, as many traders conclude AIG is not going to be another Enron. Paul Newsome, an equity analyst at A. G. Edwards, last week advised clients that AIG stock was at "an attractive entry point" and assigned it a $75 price target. (The stock currently trades around $51.) He noted that although $1.7 billion may seem like a pretty big number, "that's less than what AIG earns in a quarter." Still, Newsome noted that the "total risk is unknown at this point."

In coming clean, legal experts say, AIG took a big step to protect itself against criminal prosecution. In recent years, the Justice Department has made clear its policy of not prosecuting corporations if they cooperate in probes of potential wrongdoing. For that reason, AIG may be looking at a settlement, in which it would have to pay penalties and agree to new controls and compliance measures.

Risky talk. Things look a bit more dicey for Greenberg. Even in cases where evidence of wrongdoing is weak, meetings with prosecutors can prove hazardous--ask Martha Stewart. Especially since that case, New York securities lawyer Gregory Wallance says, attorneys are advising clients to keep mum unless they get some hard assurances. "If a lawyer feels the client could potentially become a target," Wallance says, "in those circumstances, there's no benefit and a lot of risk" to talking to investigators.

It's not yet known how much officials at General Re knew about the questionable AIG transaction. Buffett's firm can't be held responsible if it merely sold a product--the loss portfolio--to AIG that was later misused, says David Schiff, editor of Schiff's Insurance Observer. But questions have been raised as to whether there was a separate side agreement that made it clear that AIG was assuming no risk. "Now that's dangerous," says Andrew Barile, an insurance industry consultant. "I've tried to tell buyers and sellers that side agreements are red flags because why can't you put whatever it is in the agreement itself."

As for Buffett, Spitzer's office has emphasized that the Oracle of Omaha, who will meet with the investigators the day before Greenberg, is a witness in the inquiry--not a target of it. So far, Buffett's reputation as a corporate do-gooder--he was a major critic of mutual fund directors during the fund scandals of 2003--remains intact. "Warren Buffett has a record that is absolutely unblemished," says David Dreman, chairman of Dreman Value Management. Any criticisms of Buffett are all conjecture, says Dreman. But, he hastens to add, "if it turns out he was hypocritical in any way, it would disillusion a lot of people."

On its website, Berkshire has rejected allegations of Buffett's knowledge of the "nature" of the General Re transaction, a rare move for a company that has no official public relations department. Berkshire stated that Buffett was "not briefed on how the transactions were to be structured or on any improper use or purpose of the transactions." The company stressed that Buffett speaks infrequently with his business unit managers and leaves operating decisions to them. The comments suggest that Buffett is offering a defense now common among beleaguered CEOs--that he simply didn't know of improprieties by his companies.

It remains to be seen whether AIG has the same reservoir of goodwill with investors that Buffett enjoys. One investor-friendly move, says Argus Research's Anthony, would be to increase the company's dividend or repurchase shares as a way of compensating shareholders "for putting up with all this crap for the past two or three months." The company might also work to become more transparent, as AIG is far less forthcoming with financial data than many of its peers. After all, better your shareholders ask questions about your numbers than the feds.
With Paul J. Lim

-- posted by Kirk

Top 230. Apr 21, 2005 6:59 AM

» Kirk - Fitch lowers long-term outlook for Berkshire's 'AAA' rating

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Fitch lowers long-term outlook for Berkshire's 'AAA' rating
By JOE RUFF/The Associated Press
http://www.journalstar.com/articles/2005...

OMAHA — A pending insurance investigation and some doubts about the ability to find a successor to match Warren Buffett's investment expertise prompted Fitch Ratings to lower its outlook on Berkshire Hathaway Inc.'s triple-A bond rating from stable to negative.

Moody's Investors Service and Standard & Poor's continued to give Berkshire a triple-A rating with a stable outlook.

Buffett, 74, is in good health and shows no signs of retiring, but his inevitable departure as chairman and chief executive of Berkshire would make it difficult for the company to sustain its current strategies, Fitch said.

Among other things, Buffett's reputation with Berkshire shareholders allows Berkshire to accumulate cash and concentrate stock investments in a way that would generally not be accepted at other public companies, Fitch said.

Buffett could not be reached for comment, said his assistant, Debbie Bosanek.

Berkshire insurance subsidiary General Reinsurance Corp. has been a target of a federal investigation into reinsurance transactions with American International Group Inc. Buffett is not a target of the investigation, but he did answer regulators' questions on April 11 in New York.

General Re may suffer some damage to its reputation because of its participation in several of the transactions, although Berkshire's capital position is not expected to decline significantly, Fitch said.

Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco, said the insurance investigation probably tipped Fitch's rating, because issues of Buffett's succession have been around for a long time.

It will be interesting to see if other ratings services follow Fitch's lead, Connelly said.

"It's kind of a like a light on the dashboard," Connelly said. The light may be flashing, but it doesn't mean the engine is out, he said.

On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

-- posted by Kirk