Monday, June 25, 2012

Warren E. Buffett

Lucas Jackson/Reuters

Updated: April 17, 2012

Warren E. Buffett is one of the world’s richest men, a legendary investor whose
folksy image and crafty acquisition strategies have given his conglomerate, Berkshire Hathaway, a unique cachet among the nation’s largest companies.
While Berkshire is best known for its insurance operations, its holdings include such varied interests as Benjamin Moore paints, See’s Candies, Dairy Queen and NetJets. Stockholders have become devoted followers of Mr. Buffett. His management style is noted for a homespun annual letter to shareholders and a yearly investor gathering that some refer to as Buffettpalooza.
Investors big and small hang on Mr. Buffett’s pronouncements, and with good reason: if you had invested $1,000 in the stock of Berkshire in 1965, you would have amassed millions of dollars by 2007.
In April 2012, Mr. Buffett announced that he had received a diagnosis of prostate cancer. But he said that that the disease is in stage I and that he has been told by doctors that it is “not remotely life-threatening or even debilitating in any meaningful way.”
The disclosure of his illness seemed certain to stoke speculation over who will succeed him as chief executive of Berkshire. In February 2012, Mr. Buffett, 81 at the time, told investors for the first time that he had selected a successor, but did not name the candidate.
Philanthropy and Taxes
In 2010, Mr. Buffett along with Bill and Melinda Gates created the Giving Pledge, a philanthropic campaign where wealthy individuals agree to give away at least half of their fortunes. A big portion of the money pledged will probably flow into foundation endowments rather than being donated immediately to areas like education and social services.
In August 2011, Mr. Buffett wrote an Op-Ed piece in The New York Times, “Stop Coddling the Super-Rich,’' that repeated his call for higher taxes for top earners. As Mr. Buffett often pointed out, he paid a lower percentage of his income in total federal taxes (income tax plus payroll taxes) than did his secretary or anyone else in his office.
In September, President Obama proposed a new minimum tax rate for people earning more than $1 million a year that would ensure that they pay at least the same percentage of their earnings as middle-income taxpayers. He called it “the Buffett Rule,” and in 2012 he and Congressional Democrats worked to make it a central issue in the fall campaign.

Mr. Buffett’s judgment came in for rare questioning in March 2011, when it was disclosed that he knew that David L. Sokol, one of his right-hand executives and possible heir apparent, had bought shares in the specialty chemicals manufacturer Lubrizol before Berkshire announced a deal for it.
Meeting with Mr. Sokol in January 2011, Mr. Buffett was unaware that he had bought the stock in December 2010. After Berkshire agreed to buy Lubrizol for $9 billion, its shares surged, increasing the value of Mr. Sokol’s holding by some $3 million.
Rebounding From the Bust
In the wreckage left by the housing bust, Mr. Buffett emerged in 2008 as the banker of choice to embattled blue-chip companies during the credit crisis that ensued. In September 2008 he made what may be the boldest play of his career, investing $5 billion in Goldman Sachs in the midst of a Wall Street panic, at far better terms than the U.S. Treasury later got for its capital infusion. And eight days later, he announced that he would invest $3 billion in General Electric. The industrial giant had been potentially vulnerable to the credit squeeze because of GE Capital, whose global portfolio spans aircraft leasing, commercial real estate, credit cards and home mortgages.
Twelve months later, in 2009, Mr. Buffett was coming off the worst year of his long, storied career. On paper, he personally lost an estimated $25 billion in the 2008 financial panic, enough to cost him his title as the world’s richest man. Yet it was increasingly clear that few people on or off Wall Street had capitalized on the crisis as deftly as Mr. Buffett.
Yet the meltdown also brought Mr. Buffett some rare public criticism, for the disastrous performance of Moody’s, the credit ratings agency in which Berkshire Hathaway is the largest investor. At a hearing in June 2010 of the Financial Crisis Inquiry Commission, which is investigating the causes of the global crisis that led to the government bailout of big banks, Mr. Buffett testified that he did not know all that much about how Moody’s ran its business.
In 2010 Mr. Buffett said Berkshire spent more than $5 billion on property and equipment in the United States – more than 90 percent of the company’s total expenditure – and that the overwhelming part of the company’s future investment would be at home.
Mr. Buffett attributed much of the year’s success to his acquisition of Burlington Northern Santa Fe railroad, calling it the highlight of 2010. The $26 billion deal, he said, increased his company’s earnings power by more than 30 percent.
Bank of America
Mr. Buffett assumed the role of savior at the end of August 2011, when he announced Berkshire Hathaway’s plans to invest $5 billion in the beleaguered Bank of America. The investment came at a pivotal time for the troubled financial institution. Its mortgage division had racked up billions of dollars in legal bills, and the firm faced a nationwide investigation into its foreclosure practices. Mr. Buffett emphasized that Berkshire’s investment would be a long-term one, not a short-term fix.
The losses suffered by the bank — $9 billion over the last 18 months — spurred worries about just how solid its foundations were and raised fears that it would need tens of billions of dollars in fresh capital. Bank executives insist that that was not the case, and they were quick to trumpet Mr. Buffett’s move as a crucial show of support for its management team, especially its chief executive, Brian T. Moynihan.
A Move Into Tech With I.B.M.
In November 2011, Mr. Buffett revealed that Berkshire Hathaway had amassed 64 million shares of I.B.M, a stake of about 5.5 percent. The investment made Berkshire among the largest shareholders in the company.
The $10.7 billion investment was unusual given Mr. Buffett’s long-stated aversion to technology stocks, particularly Internet stocks. And while well known for his value investments, Mr. Buffett bought I.B.M. at a premium price.
Also notable about the I.B.M. deal: Mr. Buffett didn’t build that $10 billion-plus stake in I.B.M. overnight. He started buying in March, though nobody would have known it from reading Berkshire Hathaway’s filings — known as 13Fs — in which companies must disclose stock holdings.
Mr. Buffett received special permission from the S.E.C. to keep secret his investment in I.B.M. — and possibly keep secret stakes in other companies that he is building positions in that the public has yet to learn about.
The rule says that the S.E.C. “may prevent or delay public disclosure of form 13F information for public interest reasons or the protection of investors.”
Mr. Buffett and other billionaire investors essentially argue that the simple disclosure of an investment would cause the price to rise so much as to scuttle their strategy.
Sokol and Succession
In April 2011, Berkshire directors accused Mr. Sokol of misleading the company about his personal stake. According to a report by the audit committee of the Berkshire board, Mr. Sokol never told Mr. Buffett that he had bought his stake in Lubrizol after Citigroup bankers had pitched the company as a potential takeover target.
At his yearly gathering of investors in Omaha at the start of May, Mr. Buffett disclosed one fact that had been left out of what had struck many as an overly generous press release announcing Mr. Sokol’s departure: he had contacted the head of enforcement at the Securities and Exchange Commission to lay out the pattern of Mr. Sokol’s trades.
The departure of Mr. Sokol also called into question the future of the company’s management team, shuffling the cast of Berkshire executives who could succeed Mr. Buffett as chief.
Mr. Buffett has said he has no immediate plans to retire. Yet the contest to replace him has been among the most watched succession races in corporate history. In a February 2011 regulatory filing, Berkshire said its board had identified four Berkshire subsidiary managers who were capable of being chief executive. With Mr. Sokol’s departure, it is now down to three.
Mr. Buffett has said that upon his death or retirement, his roles of chairman, chief executive and chief investment officer will be split among multiple people.
Distinctive Style
In 1990, a profile in The New York Times said of Mr. Buffett:
“His discipline as an investor, his devotion to a rational, coherent strategy, are legendary. As a shrewd purchaser of stock and, on occasion, whole companies, he has compiled a record of unparalleled success. Yet in many ways, he is very different from the popular image of the financial titan.
“With his off-the-rack suits and unruly, thinning hair, Buffett resembles nothing so much as a mildly eccentric clerk in a discount shoe store. He lives in a middle-class Omaha neighborhood in the house that he bought in 1958 for $31,500. He collects model trains. In fact, he has sometimes been portrayed as the quintessential cornfed, ‘aw-shucks’ hick. Nothing could be further from the truth.”
Mr. Buffett’s investment philosophy owes much to Benjamin Graham, regarded as the father of modern securities analysis, who saw the stock market as a highly irrational place where a disciplined, rational investor could thrive. Mr. Buffett looks for what he has called “sleeping beauties” — stocks selling substantially below book value. Notably, he has made large stock purchases in companies threatened by takeover, receiving financial concessions in exchange.
As Mr. Buffett’s wealth has soared, he has become perhaps the most widely admired member of the financial community.
He has won plaudits for what he has done with his wealth — donating the bulk of his fortune, about $37 billion, and not to a foundation with his name on it, but to the Bill and Melinda Gates Foundation, an arrangement he saw as more efficient. He has also won praise for what he has not done — notably, for avoiding both the tech bubble of the late 1990s and the housing/mortgage bubble that followed.