Comments on: The value of Buffett’s cult of personality

By: Demian

Demian — Mon, 02 Mar 2009 20:50:36 +0000

I’m putting out a fatwa on Kass. May the Allah of capitalism strike him down!

By: Andrew Peck

Andrew Peck — Mon, 02 Mar 2009 18:41:23 +0000

Douglas Kass is a guy who shorted WB & BH stock through his domestic dedicated short fund Seabreeze Partners Mgmt.

Doug has been called “the Anti Cramer”, which of course contrasts his short bias with Jim Cramer’s “strong long” outlook. Both men write columns for thestreet.com

below is an excerpt from a 5/18/08 Barron’s interview with Kass. What he said then sounds pretty smart now:
Barron’s: “You’re short Berkshire Hathaway [BRK.A]. Betting against Warren Buffett in the past was a costly move, as evidenced by Berkshire’s stellar performance since the 1960s. Why do so now?

Kass: “No. 1, there will never be another Warren Buffett. I respect and admire him considerably, but in part because of the lucrative compensation set-up in the hedge-fund industry, the investment landscape now is inhabited by a lot more smart and aggressive managers who comb for value — far more than there were 10, 20 or 30 years ago. Berkshire Hathaway ‘s outperformance versus the market has been narrowing in the last decade, and I expect that will continue. Investors are going to dump the shares if Buffett is no longer at the helm, though I’m not signaling that he plans to step down anytime soon.

What else concerns you about Berkshire?

More than anything, I’m short Berkshire because of Buffett’s recent investment-style drift. In the past five years, Buffett frequently called derivatives “financial weapons of mass destruction.” Yet, very much out of character, he immersed himself in several large and thus far unprofitable derivative transactions, leading to an unrealized $1.6 billion pretax loss in the first quarter. I’m also short Berkshire because the salad days for insurance, which is the cornerstone of Berkshire’s business, are over. Also, Berkshire’s premium valuation seemingly has been a byproduct of the credit crisis, and the perception of the company as a safe haven. Berkshire’s shares might underperform as some of the deflated financial companies regain their footing. And Buffett is substantially exposed not only to financials — he owns large positions in Wells Fargo [WFC], Bank of America [BAC] and American Express [AXP] — but also to a weakening housing market through his ownership of Clayton Homes.

Kass sides with Mabel on this one.

By: Demian

Demian — Sun, 01 Mar 2009 23:22:28 +0000

Dude. you so need a blog.

By: Andrew Peck

Andrew Peck — Sun, 01 Mar 2009 21:53:27 +0000

full disclosure: I pulled what i said in my last post from this article in Portfolio Magazine’s current issue:

http://www.portfolio.com/executives/features/2009/02/11/Analysis-of-Jobs-Leave-of-Absence

it’s titled “Apple After Jobs: What the iconic company can learn from Walt Disney and Sam Walton”

By: Andrew Peck

Andrew Peck — Sun, 01 Mar 2009 21:46:36 +0000

Whether one sides in this argument with you or with Mabel comes down to whether one believes WB to be a “Clock Builder” or a “Time Teller”.
BH and other companies face this same question as their founders / gurus wind down their careers. Corporate boards and stockholders nervously try to forecast the result of a famous founder leaving the company he created. According to the ’94 book “Built to Last” , companies that endure across generations were built by Clock Builders; whereas those that shine briefly, then fizzle are run by Time Tellers.
Clock builders install built-to-last mechanisms that can keep going no matter who’s in charge: Sam Walton, GE’s 1st CEO Charles Coffin, Intel’s Andy Grove – and the U.S.A.’s founding fathers were CB’s.
Time tellers, on the other hand, are CEO’s with vision and charisma to whom everyone looks for answers – they can tell time – but no one else there can nor do they ever learn how. Once the old man leaves, the company is left ill-equipped and descends into chaos: Juan Trippe of Pan Am, Walt Disney, and (many suspect) Steve Jobs are examples of Time Tellers whose companies suffered in the wake of their absence.
I think I’ve heard this referred to as “Key Man” syndrome in a different context.
At any rate – I believe WB’s investment judgment is inherently rational and that it therefore can be codified and taught and perpetuated once he’s gone. I also have gotten the impression over the years that WB is a teacher and an engaging person – one who would want to pass along his wisdom vs. some crotchety, scary wizard in a tower (like john simon: creepy king of black box quants). BH can survive because its past success wasn’t pulled from a crystal ball – it was the result of sound reasoning and precise execution: it should run like a clock for years to come.