Wednesday, October 22, 2008

Buffett's Motives?

"Bloggers chimed in with foreboding, if accurate, reminders that Mr. J.P. Morgan, the Buffettesque figure of his day, bought big stocks including GE in the panic of 1929--before the crash. ... But the deep suspicion of [Buffett's] motives and acumen are another ingredient in the required concotion of fear and ill-feeling that will eventually mark at least a trading low in the market", Michael Santoli at Barron's, 6 October 2008.

"In exchange for his $5 billion investment in Wall Street firm Goldman Sachs Group Inc., [GSG] Warren Buffett is due a hefty dividend and an equity kicker, but he also got something else: a commitment from top company insiders that they will continue to hold a substantial stake in the firm. ... Thursday, [GSG] disclosed that Mr. Blankfein, Chief Financial Officer David A. Viniar and Chief Operating Officer Gary D. Cohn and John Winkelied had agreed to hang onto at least 90% of their current stock holdings for the term of the agreement. Their spouses and estate-planning vehicles are similarly restricted under the deal", Yogiat Patel at the WSJ, 8 October 2008.

Was there this suspicion of Buffett say five years ago? What's happened in the meantime?

This makes sense. Ensuring the GSG executives are at risk for mismanagement.


printfaster said...

Berkshire Hathaway is a Ponzi scheme. Basically Buffett hold 50% of the stock. When it is released to the trusts, guess what happens to the value of BH?

Ask yourself: "Why is Dairy Queen more valuable when under Buffett than as a stock held firm? Does Buffett know something about ice cream that no one else does?"

BH is Ling-Temco-Vought all over again in a dress. BH is a conglomerate that will collapse when all the sequestered shares are brought to market. Kind of similar to the US dollar in that way.

Independent Accountant said...

Good questions. I have not been enamored of BH for years. A real potential disaster area is GE. I have seen GE as a few decent industrial companies buried in a mountain of accounting chicanery for decades.

printfaster said...

Ahh, LTV from Wiki:
With low interest rates allowing the company to borrow huge sums, Ling proceeded to build up one of the major 1960s conglomerates. As long as the target company's earnings exceeded the interest on the loan (or corporate bond), or the company's price/earnings ratio was less than that of LTV's stock, the conglomerate became more profitable overall. Given the fairly unsophisticated stock research of the era, the company appeared to be growing without bound, and its share prices rose. [...]

In 1969 investors found that the conglomerates were not growing any faster than the individual companies had before they were bought out. Share prices plummeted, sparking a bear market, and there was a general feeling that the conglomerates were to blame for the market woes.
The more things change, the more things remain the same. Where have I heard of this sort of thing before: low interest rates spawning a bubble? Let me think...