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Warren Watch: At this lunch, tips for diners!!!!
goodyrl 8/24/2008

Published Sunday August 24, 2008 ...

Published Sunday August 24, 2008
Warren Watch: At this lunch, tips for diners
BY STEVE JORDON
WORLD-HERALD STAFF WRITER

A $650,100 lunch with Warren Buffett included a blessing for a businessman from India.

At the lunch, from left, are Guy and Lory Spier; Warren Buffett with Monsoon and Momachi Pabrai; Harina Kapoor; and Mohnish Pabrai.

In the Indian magazine Business Today, Mohnish Pabrai recounted the event that he and a friend, money manager Guy Spier, won in an online auction to benefit the Glide Foundation of San Francisco.

The three-hour lunch was in June at Smith & Wollensky, a New York steakhouse, with the two men's families. Spier manages Aquamarine Capital Management LLC Investors. Pabrai sold his computer consulting company in 2000 for $20 million and now manages investments.

He and his wife, Harina Kapoor, also formed the Dakshana Foundation, which provides free computer coaching to poor rural scholars.

Pabrai said Buffett was "full of energy" and posed for as many pictures as anyone wanted. Flanked by Pabrai's daughters, Monsoon and Momachi, he ordered a T-bone steak, hash browns and a cherry Coke.

"We discussed 55 different topics, ranging from Warren's value system as an investor to his friend and Berkshire Vice Chairman Charlie Munger to the importance of picking the right life partner," Pabrai said.

He said he was deeply moved by Buffett's apparent love for his late wife, Susan. He said, "I never did anything for Susie, but she did everything for me. I wouldn't have been as successful without her."

"As Warren told us, she would routinely take homeless people dying of AIDS into her home in San Francisco to make their last days as comfortable as possible," Pabrai wrote in the Business Today article. She once flew a dying man to New York to fulfill his last wish of meeting the Dalai Lama.

Pabrai said he asked Buffett whether a person should immediately dive into philanthropic activities. "Warren's reply was simple: It's never a good idea to wait to do anything; given the uncertainty of life, just get going."

Pabrai's daughters gave Buffett a scrapbook on him they made. He gave them bags of candy, including M&Ms with his picture, and invited them for hamburgers at Johnny Rocket's restaurant chain in Irvine, Calif., where Pabrai lives.

Buffett also set up a lunch date for him with Munger.

Pabrai said he considers Buffett his guru, or teacher. He said he owed Buffett a "guru dakshana," or Indian offering to a teacher.

The lunch is part of that payment, Pabrai said, and he asked if he could touch Buffett's feet while Buffett put his hands on his head and blessed him. Buffett agreed.

"The 14 years of learning vicariously from Warren have made me into a vastly better human being," Pabrai said.

Earlier this year, Chinese money manager Zhao Danyang bid $2.1 million for the next Glide Foundation lunch with Buffett.

October conference

Buffett is one of the celebrities scheduled to appear at the Women's Conference 2008, Oct. 21-22 in the Long Beach (Calif.) Convention Center, along with Lance Armstrong, Jennifer Lopez, Secretary of State Condoleezza Rice, California Gov. Arnold Schwarzenegger, Gloria Steinem, Rachael Ray, Bono, Caroline Kennedy and Bonnie Raitt.

California first lady Maria Shriver said full-day passes sold out in three hours, although recently, the Oct. 21 "Night at the Village" evening event still had some individual tickets left.

Those without tickets can see a live webcast at http://www.californiawomen.org/.

World-Herald researcher Michelle Gullett contributed to this report.

LINK: http://www.omaha.com/index.php?u_page=1208&u_sid=10414156

• Contact the writer: 444-1080, steve.jordon@owh.com

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Good article about Fairfax (in French)
goodyrl 8/17/2008

There was the producer of paste SKF Pâte l' last year. Th...

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There was the producer of paste SKF Pâte l' last year. There was the giant of the AbitibiBowater newspaper in spring. And this week, c' was with the turn of the manufacturer of toys Mega Brands of s' to hang to the life buoy of 64 million dollars launched by Fairfax Financial. Click more: Macro-economy | Investments | Finances (general) | Schools, colleges and colleges | Prem Watsa | Paul Rivett The “magnanimity” of Fairfax Financial is well-known in Ontario, where l' one épie least gestures of this Toronto-native company and its big boss, Prem Watsa. But in Quebec, this champion of the businesses in difficulties remains ignored. That made l' perfectly; business of Fairfax, whose leaders flee the cameras and the microphones. It n' there does not have so a long time, the leaders of Fairfax n' did not grant d' interview. For this reason Prem Watsa is invariably presented in the Toronto-native press like a secret man and even recluse - a falseness, according to his/her colleague Paul Rivett, who describes it like very sociable. But the only way for an investor d' to have l' hour right was d' to attend l' annual meeting of Fairfax. Still aujourd' today, this company registered with Toronto Stock Exchange and New York n' Stock Exchange; no financial target emits, not more qu' it n' organize promotional tour near the institutional investors. However, Fairfax s' has been ravisée for two years after having known a series of vexations. Indeed, as much Fairfax sought to be done discrete, as much it defrayed the chronicle. Fairfax collects the insurers of damage and the reinsurers in Canada, in the United States and elsewhere, as in India and Jordan. Like it s' d' acts; commercial insurers for l' essence, these companies are little known general public. In 2007, record year, Fairfax a net profit of 1,1 billion dollar boxed on a figure d' businesses of 7,5 billion dollars. In 2005 and 2006, however, one did not give expensive of Fairfax. The company which invests in companies in perdition tested itself of the problems and had to be solved to sell certain pieces of furniture. Securities& Exchange Commission (SEC), the gendarme of the Stock Exchange in the United States, also assigned Fairfax and Prem Watsa to appear within the framework d' an investigation carrying into nontraditional products of reinsurance (of the finite reinsurance in English) which are as easy to include/understand as Chinese characters. This investigation which aims at about thirty d' insurers in the United States - c' is that which led to the beginning of Hank Greenberg d' AIG - always has course. But already, Fairfax had to reprocess its financial results. C' is what made say to several analysts that Prem Watsa did not deserve any more its old nickname of “Warren Buffet of North”. 57 years old, Prem Watsa is a self-made man. Born in Hyderabad, in India, this man d' businesses has immigrant in Canada in 1972 with the suggestion of his/her father, a professor d' school which l' encouraged to join his/her older brother with London. This engineer chemical-graduate of prestigious Indian Institute off Technology undertook a MBÀ with l' University of Ontario Western. It financed its studies with menus jobs, of which the sale of air-conditioners. Prem Watsa started with worked in 1974 for the Confederation Life Insurance Co., and it n' left the world of l' forever; insurance and of l' investment since. In 1985, it repurchased Markel Financial, a small insurer in the haulage which missed liquidities, to fly of its own wings. Two years later, it renamed it Fairfax (to fair and friendly acquisitions). The small insurer d' yesterday aujourd' has; today more than 19 billion in its trunks. For this reason Prem Watsa does not leave anybody indifferent. For some, c' is a genius of the finance which knew to reinvest with sense of smell the premiums of the insurers under Fairfax. For d' others, its reputation of large financier is overrated. The latter almost were right of Fairfax while betting on the fall of its title. But Prem Watsa has counter-attack with l' summer of 2006 with a spectacular continuation of 6 US billion in the New Jersey against Capital SAC Management and d' other funds of cover. Fairfax pleads that these funds orchestrated a campaign to nuir in Fairfax in the financial community. According to l' company, these funds would have intimidated leaders, going even jusqu' to badger the woman, the secretary and Pasteur Anglican of Prem Watsa. This abracadabrante cause - a respondent claimed to act under the orders of the FBI! - n' was not heard yet. The fan club of Prem Watsa s' is widened considerably during the last year. C' is because Fairfax, which likes to go in the contrary direction of the market, felt to come the crisis from the credit. In its annual letter with the shareholders of 2003, Prem Watsa warned the investors against l' unslung use of not regulated derivative products. “We foresee losses for the North-American insurers who seek higher outputs while buying or while ensuring of the trade paper leaned with real loans car, loans and credit cards, loans which could be at fault if l' economy worsens”, wrote it. Fairfax, added it, avoided d' to invest in the highly exposed companies with such products. “C' is a catastrophe in becoming!” he wrote five years here are! Passing from the word to the gesture, l' company acquired swaps on failure, of the derivative products which take value more l' subjacent company is in financial distress. When the crisis of the credit s' is started, their value exploded. Fairfax already resold for 1,4 billion dollar the swaps acquired at the cost of 436 million, for a net profit of almost 1 billion dollar. However, it him still remains about it for 679 million (commercial value at July 25). L' another reason for which Fairfax causes l' admiration, they are the outputs of its investments. Since 15 years, the wallet d' actions of Fairfax posts an average annual output of 19,5%, compared to 10,4% for S& P 500. Fairfax s' has been also dissociated with its bond placements, with an average annual output of 10,1% for 15 years, compared to the annual output of 6,5% of l' index of the obligations d' American companies of Merrill Lynch. With outputs like these, Prem Watsa could claim a remuneration mirobolante, comparable with those of the financial sector. But its wages s' is high with 600.000$ l' last year, and c' is all this qu' it touched. Since 2000, Prem Watsa has occurs d' a production bonus and d' a mode of retirement. For this man d' businesses, l' shareholder of control must only be rewarded by l' appreciation of its actions. Prem Watsa has 9,7% of the capital of Fairfax, but control 47,6% of its rights to vote. C' is perhaps for that l' one forgives in Fairfax certain investments which make to sourciller even its finished fans. Batch are the 350 million invested in AbitibiBowater, a producer of newspaper which always collapses under the weight of its debt. Fairfax recommends an approach centered on the value and claims l' US investor Benjamin Graham. “If the newspapers are in declines in North America, it goes from there differently to Asia. And then, credits of l' company have a value higher than the price than we pay”, justifies the vice-president Paul Rivett. (Us n' could join Prem Watsa, which was on holiday.) What qu' it is, Fairfax remains very careful since Prem Watsa is convinced that l' North-American economy n' did not leave wood; nearly 80% of funds of Fairfax are placed in sedentary titles of the money market. “As all the investors who recommend l' approaches value, they are easily allured by cochonneries (junk), note l' financial analyst Tom MacKinnon, of Capital Scotia. But in the great order of the things, when one has more than 18 billion to invest, these placements are almost trifles.”

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Moodys Buffett-ed
goodyrl 2/20/2008

<v:shapetype id=_x0000_t75 stroked="f" filled="f" pat...

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Barron's Whos on Deck at Berkshire
goodyrl 3/19/2006

Monday, March 20, 2006 ...

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Monday, March 20, 2006
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Who's on Deck at Berkshire?<DATEANDTIMESTAMPWITHBR />

By ANDREW BARY<DATEANDTIMESTAMPWITHBR />

THE RECENT RELEASE OF WARREN BUFFETT'S annual letter to Berkshire Hathaway shareholders highlighted the company's impressive financial strength, its growing earnings power and the 75-year-old Buffett's most detailed discussion of the delicate succession issue.

Buffett didn't identify his successor as chief executive, but did say that Berkshire has three managers who are "fully capable of being CEO," and that Berkshire's board "has unanimously agreed on the person who should succeed me if a replacement were needed today."

Who is that Berkshire manager? Our best guess is that it's David Sokol, 49, the chief executive of MidAmerican Energy, Berkshire's utility arm and the largest single earnings contributor to Berkshire after its insurance operations. While relatively young, Sokol has significant experience as a CEO, has demonstrated deal-making skills and appears to possess the ambition and ego needed to fill Buffett's enormous shoes. And since Berkshire is likely to do additional utility acquisitions beyond the pending $5 billion purchase of the Oregon electric company PacifiCorp, Sokol's experience in the field would be a boon.

Warren Buffett has made the job easier for his successor, who could be David Sokol, top. Berkshire has a fortress-like balance sheet, with $40 billion in cash and $46 billion of stocks.

It probably doesn't hurt that Sokol was raised in Buffett's hometown, Omaha, and went to the University of Nebraska. He works in Omaha, giving him easy access to the boss. Sokol was the wunderkind who ran a public company, Ogden Projects, when he was in his 20s. In 1991 he took the helm at California Energy, merged it with MidAmerican, an Iowa utility, and then sold MidAmerican to Berkshire in 2000. He elicits consistent praise from Buffett, who called Sokol and MidAmerican's president, Greg Abel, "terrific managers" in the annual letter.

We first tipped Sokol for the chief's post in our cover story "Buffett's Legacy¹," on April 26, 2004. Like our current assessment, it was based on discussions with investors who closely follow Berkshire, and on our coverage of the company for the past seven years. We have no inside knowledge; Buffett and Sokol have declined to comment. Meanwhile, Buffett deflected attention by noting that he feels "terrific." Given his good health, he could be at the helm at least another five years. He relishes the job, and most Berkshire holders want to see him running the show for as long as he can.While many feel that Buffett, whose 32% stake in Berkshire is worth $45 billion, is irreplaceable, Berkshire holders can take comfort in the great shape the company is in. It's sitting on $40 billion in cash, holds another $46 billion of stocks, and may generate $7 billion-plus in after-tax income this year from a growing stable of insurance and noninsurance businesses.

Berkshire's Class A shares (ticker: BRK/A), trading around $90,000, may look expensive because of their high absolute price, but the stock appears pretty reasonable based on the company's rising book value and earnings power. "It's hard to conclude that Berkshire is worth less than $90,000 a share, and it could be worth a lot more," says Keith Trauner, a portfolio manager at Fairholme Capital Management, a Short Hills, N.J., investment firm that holds Berkshire stock. Trauner values Berkshire in a range around $120,000 a share, or 33% above current levels. Berkshire's Class B shares (BRK/B), equivalent to 1/30th of a Class A, trade around $3,000 a share.

Berkshire fetches 1.5 times its year-end 2005 book value of $59,377 a share and 20 times estimated 2006 profits of $4,500 a share. This projection comes from Credit Suisse analyst Charles Gates, the only analyst from a major Wall Street firm covering Berkshire. The company generated operating earnings of about $3,250 a share in 2005, despite suffering $3.4 billion of hurricane losses at its insurance units. Berkshire's price-earnings ratio is overstated to the extent that the company sits on a massive cash hoard, and collects only dividend income on its large equity holdings.

Buffett offered investors some insight into calculating Berkshire's elusive "intrinsic value" in the letter by breaking down the company into its investments, which are largely derived from its insurance operations, and the earnings from its other businesses. That discussion suggests that Berkshire might be worth $100,000 or more a share.

Table: Growing Portfolio²

Buffett continues to search for acquisitions, spending $2.4 billion on deals last year. In 2003, Berkshire bought mobile-home builder Clayton Homes and grocery wholesaler McLane. While most conglomerates are shedding divisions to become more focused, Berkshire is going in the opposite direction.

While Berkshire now boasts some 68 companies under its corporate umbrella, there doesn't appear to be a lot of CEO material besides Sokol, partly reflecting Berkshire's decentralized structure. Only 17 people work at Berkshire's Omaha headquarters. Apparently determined to keep Berkshire's distinctive culture intact, Buffett wants his successor to come from within.

Who else might have a shot? Ajit Jain, 54, the head of Berkshire's reinsurance unit that writes big-ticket policies for catastrophes like earthquakes and hurricanes, has been a big money maker for Berkshire for two decades. Yet Jain is uncomfortable in the public spotlight, and in 2000 told The Wall Street Journal he wasn't interested in the top job: "Why would I want to make my life miserable? I like my job." If he succeeds Buffett, Berkshire will have to find someone else to head Jain's division, whose success owes a lot to Jain's talents.

One benefit for Berkshire in tapping Sokol is that Abel presumably would be able to step in to run MidAmerican. The pair, and Walter Scott, a Berkshire board member, control about 20% of the company with Berkshire owning the rest.

Joe Brandon, head of General Re, Berkshire's big reinsurance arm, probably isn't a contender because he's enmeshed in the scandal involving Gen Re's dubious reinsurance contracts with American International Group that led to the downfall of AIG CEO Hank Greenberg. The Securities and Exchange Commission informed Brandon in September that it may file civil-enforcement actions against him for his role in the deal and other nontraditional insurance policies written by Gen Re.

While Buffett has been a defender of Brandon, it's doubtful that Berkshire's conservative board -- including Microsoft Chairman Bill Gates -- would be comfortable naming Brandon CEO as long he is under a legal cloud.

Other former Gen Re officials, including CEO Ron Ferguson, have been indicted for their role in the AIG contracts. Gen Re also has been a financial disappointment since Berkshire paid $22 billion for the company in 1998.

Other possible internal candidates, notably Tony Nicely, 62, the CEO of Geico, and Rich Santulli, 61, head of NetJets, are probably long shots, since Buffett said in the shareholder letter that the three CEO candidates are "reasonably young." Santulli's chances in any event have been hurt by NetJets' weak financial performance. NetJets, the leading provider of fractional interests in corporate jets, lost $80 million last year.

There could yet be a dark-horse contender inside Berkshire -- but it's unlikely to be anyone Buffett hasn't introduced and praised in the annual letter.

BUFFETT PLANS TO SPLIT his job in two. The CEO will oversee the Berkshire operating businesses and probably focus on acquisitions. An investment chief will handle Berkshire's equity portfolio and possibly manage Berkshire's bond holdings, $27 billion at year-end.

Buffett in the past has suggested that Lou Simpson, the sterling manager of equity investments at Geico, Berkshire's auto-insurance arm, could head the investment side. True, Simpson has a great record running a $2 billion portfolio at Geico. But he's now 69.

It may not be easy finding a top-notch investment chief: Berkshire will need someone with a strong record and large enough ego to replace the world's greatest investor. Anything Buffett's successor does in the stock market is apt to be closely scrutinized and second-guessed. The investment chief, moreover, will have to overcome some built-in hurdles: Large embedded gains in longstanding Berkshire holdings like Coca-Cola, Procter & Gamble and American Express mean major tax penalties if the portfolio is overhauled.

Buffett has generated solid but not spectacular performance from Berkshire's equity portfolio in recent years. Berkshire benefited from Procter & Gamble's takeover of Gillette last year and the continued strong performance of Moody's and American Express, but Coke has been a disappointment.

During 2005, Berkshire took a sizable position in Anheuser-Busch, buying $2 billion, and purchased almost $1 billion of Wal-Mart Stores, while adding about $2 billion to its long-standing holding in Wells Fargo, bringing the total Wells Fargo investment to $6 billion. As Buffett told shareholders in the letter, he expects "no miracles" from the equity portfolio, which is dominated by "strong, highly profitable businesses" that are "not selling at anything like bargain prices."

The Bottom Line

Berkshire shares look attractive, trading for 1.5 times book value. One portfolio manager thinks that the Class A stock is worth around $120,000 per share, well above its recent price of $90,000.

There isn't a lot of enthusiasm for Berkshire on Wall Street. Credit Suisse's Gates rates the stock Neutral and carries a price target of $95,000 a share. Echoing others, Gates cites the difficulty that Berkshire faces in deploying its excess capital and the "lack of clear management succession (the board might know, but do you?)," according to a recent note. Gates declined to comment.

These aren't trivial issues. Buffett may find it difficult to find the elephant-size acquisition that he seeks because he refuses to participate in auctions of companies or do hostile deals. Buffett repeatedly warns that Berkshire can't reproduce the returns of the past 40 years. With a market value of $137 billion, Berkshire simply is too large to produce enormous returns. Yet to borrow a phrase from Buffett, Berkshire could be a good but not great investment.

At 1.5 times book, Berkshire trades near the lower end of its 10-year range and the stock is down in the past two years, despite 18% growth in book value. Book, meanwhile, significantly understates Berkshire's intrinsic value. Book is apt to grow at 10% or more this year, assuming no major catastrophe losses. This suggests Berkshire shares could trade at $105,000 in a year, assuming only modest expansion in its price-book ratio.

In the post-Buffett era, Berkshire may pay a sizable annual dividend and repurchase stock, actions Buffett has been unwilling to take. It also may split its stock, another step Buffett has resisted.

Berkshire may not be the most exciting stock, but it stands a decent shot of besting the Standard & Poor's 500 in the next few years. With its fortress-like balance sheet, Berkshire is probably one of the most defensive big stocks in the market. In a financial meltdown, Buffett would be ready to deploy large amounts of capital on attractive terms. Wall Street now is penalizing Berkshire for Buffett's conservatism, but that's one of the company's greatest assets.

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