http://seekingalpha.com/article/100720-here-i-go-criticizing-warren-buffett ============================================================= I’m about to commit the cardinal sin of finance… criticizing Warren Buffett. Buffett needs no introduction as an investor. He’s returned average annual gains of 21% since 1965 and is largely considered to be the greatest living investor, if not the greatest investor of all time. However, in terms of ethics or business principles, Buffett’s been venturing into some somewhat shady territory in the last two months. First came his $5 billion investment in Goldman Sachs (GS). Buffett bought preferred shares yielding 10% a year. Goldman can buy the shares back at any point at a 10% premium. And Buffett also receives the right to buy $5 billion worth of GS stock at $115 per share at any point in the next five years. The talking heads went bananas over this, claiming it was a tremendous show of confidence in financial stocks. It wasn’t. It was an unfair deal HIGHLY in favor of Buffett and no one else. The $2.5 billion in additional capital GS raised from ordinary shareholders certainly didn’t come with any of these benefits. However, what pushed the Goldman deal over the brink from “unfair” to outright improper was that Buffett was consulting with Congress over the then-proposed $700 billion Bailout almost immediately after the ink dried on the deal. Buffett said the plan was “absolutely necessary, in [his] view, to really avoid going over the precipice." Now, Goldman Sachs and other financial firms were undoubtedly the ones who would benefit most from the $700 Bailout in its original conception: a mega fund that bought junk debt from Wall Street banks’ balance sheets. So for Buffett to be consulting with Congress about the deal is a serious conflict of interest, if not insider trading. Then came the GE deal. As was the case with GS, Buffett grabbed $3 billion of GE preferred shares yielding 10%. He was also guaranteed a 10% premium on the price he paid, should GE choose to buy the shares back from him within the next three years. And he was given the right to buy an additional $3 billion of GE stock at any point in the next five years at $22.25 a share. Again, this long list of perks was made exclusively to Buffett, NOT the poor saps who ponied up $12 BILLION for GE via the ordinary share offering it issued at that time. But then, Buffett goes on CNBC — a GE subsidiary —to discuss how great an investment GE is!!! Again, a serious conflict of interest AND seriously bordering on insider trading. Finally, last Friday, Buffett writes an op-ed piece for the New York Times lauding how attractive US stocks are compared to cash and gold. He even goes so far as to say he’s considering moving ALL of his personal holdings into US stocks. He is, of course, correct in his assertion that stocks will outperform cash over the next decade and that the moves the government takes to fight the financial crisis will all be inflationary. But does Buffett really need to be on a soapbox telling people to buy stocks right after $2 trillion in retirement and pension funds has been wiped out? Especially when he knows darn well that most people don’t have his ability to ignore the stock market for a year… let alone five to ten years? Again, I am not criticizing Buffett as an investor. The man’s genius is virtually unequaled in the financial world. But this latest string of deals is inappropriate to say the least. And while investors who heed Buffett’s advice to buy now will certainly make money in the long run, I guarantee Buffett won’t be writing additional pieces assuring them of the value when they’re down another 10%, 20% or even 30% in the next few months.
This article does not seem particularly well-written to me. Maybe I’m biased.
maybe you are
Haha ok…
None of that borders on insider trading at all. This was written by someone who is not familiar with the way the world works. He didn’t mention that anyone who wants to participate with Buffett can just buy Berkshire.
^^ good point
I’m with bleek.
It’s not Buffett’s job ensure fairness in the deals he negotiates as CEO of his holding company (for which he has pledged nearly the entirety of value to charity). If the deals aren’t fair, it’s a breach of fiduciary duty by the BoD’s, not Buffett. To echo VCFA’s point, the person just doesn’t understand how this stuff works. Insider trading? In deals like this, BRK almost certainly has an NDA allowing them access to inside information, in connection with a lockup on the shares.
> Again, this long list of perks was made > exclusively to Buffett, NOT the poor saps who > ponied up $12 BILLION for GE via the ordinary > share offering it issued at that time. Poor saps. GE should definitely give them preferred shares and rights to buy stocks out of kindness. Big mean Buffet shouldn’t be the only one to get special treatment. Just because he is a mutibillionaire doesn’t mean companies should have to offer good terms for use of Berkshire’s cash.
not insider trading most likely and the author ends the article without telling us why we should belieive his lcosing line" markets down 30% in the next few months? Looks like he dramatizes it at the ned to make a pt that really is not there. I got cushed in the GE deal and am down 11 pts on GE. I dont blame Warren as much as I do the mgmt team that waited too long to raise capital. They could have technically speaking raised cheaper preferred 6 months ago before the commersh paper mkt congealed. Warren simply took advantage of a good deal - who wouldnt?
Is a dollar from Buffet worth more then a dollar from someone else?
Fremantle Wrote: ------------------------------------------------------- > Is a dollar from Buffet worth more then a dollar > from someone else? Arguably it is.
Fremantle Wrote: ------------------------------------------------------- > Is a dollar from Buffet worth more then a dollar > from someone else? I actually believe it is yes. First not many people or groups have the cash Buffet has avaliable. Other then begging for a bailout, not many people will be willing to shell out 12billion dollars right now. We definitely not from one individual. You might be able to gain it through various sources, but you’ll be forced cover all of their demands. Or you could just go to one source. So yea his liquidity has value, and on top of everything, he has his name. Like it or not, his name has weight. Don’t cry about it not being fair, he built his name. If you want fair, do the same, build your name like he did.
So the Buffet branded cash comes with a 10% premium…he should open a bank!
OF COURSE HIS CAPITAL IS WORTH MORE! He is the greatest capital allocator of our times. Investors follow him more than any person on the planet. Zillions go to Omaha every year just to catch a glimpse.
NakedPuts Wrote: ------------------------------------------------------- > Fremantle Wrote: > -------------------------------------------------- > ----- > > Is a dollar from Buffet worth more then a > dollar > > from someone else? > > Arguably it is. Or cheaper
He has it, you want it. . . . CASH. He has every right to dictate terms to those who seek his capital. We would do the same. What’s the problem?
How is this possibly insider trading? I think I understand some people’s resentment with Buffet. He is universally praised as a sage investor and a philantropist. People like to point out that he’s not all that sweet at times. He’s a businessman first and he drives a hard bargan. If GS and GE thought the terms of his cash was too steep the could have said no. It wasn’t like Buffet needed them, they needed Buffet.
The onl relevant point the article raises is whether GE and GS disclosed something to him that is material and non-public in nature. If so, yes then he is most certainly involved in insider trading, just like we have been taught about insider trading. Having said that, I have no reason to believe that he was privy to something special, but the writer has the right to ask.