Berkshire Hathaway

There are those who think that Warren Buffett’s days of being an awesome value investor are behind him. Those people are crowing a little today after his recent darling Bank of America crossed $5 in the wrong direction, which I guess is a big deal. Here, however, is probably a thing not to think about that:

Yes, Bank of America’s stock swoon is dragging down America’s wisest investor, Warren Buffett, who now is about $1.5 billion underwater on his BofA common-stock warrants.

Disagree! I happen to have a model for that right here (earlier/caveats), and I have him very roughly breaking even (you’ll care about H24, which shows him up $52mm on his $5bn investment). This uses a 45% vol (vs. 62% mid on Jan-14 $7 calls, 77%ish for their A warrants struck north of $13, 58% 1-year realized) and 8.75% discount rate on the pref (around where I eyeball the Is and Js); you can dispute those assumptions and get a different smallish positive or negative number* but the important point is: Warren Buffett didn’t lose $1.5bn on his $5bn investment. If you’d invested $5bn in BAC common stock at around $7, when Buffett did, you’d have lost $1.5bn in round numbers. But you’re not Warren Buffett. (He is!)

Some people think that this is pretty crap – along the lines of “I’d be a great investor too if I could just get every financial firm to give me a sweetheart deal for lending them my Cherry Coke-encrusted halo” – but, of course, you can. A share of BRK/B is, like, 74 bucks. All that warranty goodness accrues to Berkshire Hathaway, not (just) Buffett.

Now, if there’s one investing strategy that I understand even less than “give my money to Bank of America to do what they will with it, what could possibly go wrong,” it’s “momentum investing,” where you buy stocks that have been going up because past results are a guarantee of future performance.** So I found this Fortune article about Cliff Asness’s new momentum-based retail mutual funds utterly baffling, and not only because a close reading suggests that these new funds were launched in 2009. Read more »

Two bits of news are out today at the high and low ends of what you could loosely call big financial institutions. At the low end, Jefferies, which I’ll stick with calling wee given its $40 billion balance sheet, is blasting out minute-by-minute, issuer-by-issuer, maturity-by-maturity, CUSIP-by-CUSIP accounts of its holdings of European sovereign bonds, its trading activity in those bonds, and the lunch orders of the traders trading those bonds. First it had no exposure – $2.4bn gross, $9mm net short notional, $37k of DV01, almost all cash with some futures – and then it had even less exposure, cutting gross exposure in half although apparently increasing net. The aggressive PR campaign seems to be working, with the stock basically where it was before anyone spent any time thinking about Jefferies, and up today in a down tape.

At the high end, Berkshire Hathaway, which is not entirely unlike a thinking man’s AIG and has a $385 billion balance sheet, disclosed Friday that it lost two billion dollars last quarter in mark-to-market on its $34 billion notional of short S&P index puts. Also Berkshire is ramping up single-name equity investments without telling anyone what they are.

One more thing about BRK/A that you may or may not find related is that it may or may not be a “non-bank G-SIFI,” that is, a financial institution that is not an FDIC insured bank but is nonetheless “too big to fail” because of its size and interrelationships:
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Howard Buffett said his father, billionaire Warren Buffett, plans to work until death leading Berkshire Hathaway Inc. and isn’t considering retirement. “That word is not in his vocabulary,” Howard Buffett said in an interview yesterday in Des Moines, Iowa. “He says when he goes to the grave he will communicate with us via Ouija board.” [Bloomberg]

So here’s kind of a silly way to conceive of yesterday’s Berkshire Hathaway buyback, complete with Google Docs spreadsheet. Because everybody likes Google Docs spreadsheets.
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At the annual Allen & Company conference here, DealBook asked Mr. Buffett whether he thought Mr. Blankfein might resign from Goldman in the coming months. The Oracle of Omaha didn’t mince words. “I don’t think he is. I’ve seen nothing to indicate that myself, and I don’t want him to,” he said enthusiastically. “I want him to stay!” [Dealbook]

  • 07 Jul 2011 at 11:20 AM

Warren Buffett Wants Congress To Grow Up

Warren Buffett told CNBC today that Congress is playing a “silly” game of “Russian Roulette” by threatening not to raise the nation’s debt limit as it debates deficit reduction. In a live interview on Squawk Box from Sun Valley, Idaho, where he’s attending the annual Allen & Co. media conference, Buffett warned of “enormous disruption” if there’s no deal to raise the U.S. debt limit. Buffett told Becky Quick that the country’s bills will be paid one way or the other, and Congress should address the situation with “maturity.” [CNBC]

“The bubble in America was caused by some combination of megalomania, insanity and evil in, I would say, investment banking, mortgage banking,” Munger, 87, said today at a conference in Pasadena, California…“I would guess that Dick Fuld has not a single ounce of contrition wherever he sits today,” Munger said. [Bloomberg]