GF:
What's Warren trying to hide? Nothing, except securities reporting deadlines may come in the middle of his acquisition of a full position. Unlike me, who can get a full position in any stock I'm interested in at almost any time of day in a few minutes, Warren has to take on increasingly bigger and bigger positions, which is especially troubling in the public markets. He used to be able to buy $1-2 million dollar pieces of his target and stay low on the radar. I don't know what his minimum investment is these days but my guess is even a trading position for him is $100 million. These last two acquisitions were for approximately $1 billion each.
Warren is famous for many statements but one of them is that it's difficult to have more than a few good ideas for investment. It's much more difficult if you can't execute your ideas because others are bidding against you simply because you're bidding. And government disclosure makes that even harder still.
I've read maybe 5-6 books on Buffet--the best is Loewenstein's, btw. What's interesting is that the hoi polloi think Warren is this folksy guy who simply buys and holds forever companies like Coke and the Washington Post. Not true. First, he's an insurance magnate, who gets premium cash flow which he must invest. Since he's a smart insurance guy, he sells the insurance for a lot more than it's worth (another way of saying that he chooses his insured's very carefully, beginning with the Geico biz), then as a savvy investor, takes more risk and gets more reward than his insurance competitors. This frees up cash for, guess what, further investment.
Say he sells insurance for $10,000,000 premium, which will have to pay off (risk adjusted) $12,000,000 in 20 years. His insurance competitors receive $10,000,000 premium but because they don't manage their risk as well, they'll have to pay out $15,000,000 in 20 years. So far so good.
But Warren can earn 20% on the $10 million in 2 years, easy, while it takes his competitors (investing in bonds, etc.) 12 years to earn the 50% return they need to cover their liabilities. But in years 3-20, Warren is busy investing all the free cash flow from his "superfund" investments in KO, etc. When it comes time to pay off his insurance liabilities, he pays off the $12 million easily and has maybe an extra $60 million in the till (or investments) from the 18 years of investment returns on the policy owner's original $10 million in premium. Or more, because once you start compounding his returns, even subtracting out his mistakes, the numbers get pretty unbelievable. Which is why he's worth $35 billion all by hisself.
At the same time Warren is playing risk arbitrage on announced deals, occasional commodity plays and even white knight (during the 80s) to takeover targets, earning excellent returns which provide more cash to his "superfund" activities.
It's a great business and a great biz plan, but it's no where near as simple as the Yahoo morons who claim "Buffet made a lotta dough using buy & hold and so will I" nonsense.
End of short disquisition on Uncle Warren.
Kb |
