Buffett on David Winters.

[Guest wellmont]

ouch. that one's gonna leave a mark....

[Guest longinvestor]

Hasn't Winters been a thorn in his side vis-a-vis KO? This helps to make Winters seem less credible without directly refuting anything Winters has said.

 

I have no dog in this fight, so I don't really care, I just thought it was an odd attack.

 

Have  you heard the phrase, "We eat our own cooking"?  The point that Buffett made is that unless David Winters can earn his keeps with his own performance to earn his fees, he should not be go picking a fight with the KO board and drag Buffett in.  I was in the room in the audience when David made his plea with Buffett, and Buffett had said to David and everyone that he had told the BOD of KO of his thoughts on the compensation and that was that. 

 

I have met David at a few times in Omaha and at Wesco; I think he is a very mild manner, good guy.  I just think his activism with KO took to another level that turned the switch on Buffett.

 

Actually "eat our own cooking" typically relates to someone fully invested in the fund they're managing. I don't know much about Winters, and again I don't really care either way - he could be totally off-base in his critique of the KO situation - but it was an odd aside in the interview.

 

So, what percentage of his net worth does Winters own in his own fund? But wait, that kind of standard is for folks like Buffett and Watsa.

 

Fund managers don't do that, they are in the OPM biz! Winters is looking out for his fund investees's a$$ surely!

[Guest wellmont]

Classless move.  What Winters charges in fees is known up front and voluntarily entered into.

 

For all of these years that I have followed Buffett, Buffett chooses his words VERY, VERY CARFULLY.  He would never take shots like he did unless the facts are there to back him up.  Read btw the lines of what Buffett said.  Do you think Buffett didn't do his homework on David Winters' performance before he spoke up?

 

he's saying wintergreen shareholders are being fleeced and can do better in an index fund. winters made it personal by going after Buffett's son. Winters better start performing. you can only go so far on awh shucks aphorisms and a tom sawyer grin.

[Guest wellmont]

David Winters had a good start, he was mentored by Max Heine and Michael Price.

One of the problem is that he opened his Wintergreen fund prior to the financial debacle.

From 2006-2008, you could spot him on Consuelo Mack wealthtrack and cnbc preaching his optimism on the stock market.

Winters was clearly raising funds and got burned like most of the value shops during the crash.

At Wesco’s annual meetings, he used to ask his lollapalooza questions and played the faithful Munger-Buffett fan.

He seems to be a nice guy although he also seems to have lost it during the Coke compensation drama.

David Winters took it to a personal level and openly criticized Buffett for abstaining during the Coke vote.

After that, his fund sold its entire BRK position. In retrospect, Wintergreen's shareholders got negatively impacted by the sale given BRK strong performance.

Even if Winters doesn’t advocate smoking; I couldn’t invest in his fund due to its permanent large exposure to tobacco companies (18.2% of the portfolio as of Jan 2015) and comfortable management fee.

I think he is making too much noise about Coke while only having 5% or $105 million of his fund invested in the company.

Buffett’s recent comments will adversely impact Wintergreen fund's ability to grow its shareholders base while under performing the market.

David Winters should focus on delivering performance to its remaining shareholders instead of being a pain in the neck (excuse my French).

 

see the problem is he keeps a lot of cash around. and many of these guys failed to exploit the 2008/2009 debacle for the benefit of their shareholders. what were these guys doing at the time?

[KinAlberta]

Hasn't Winters been a thorn in his side vis-a-vis KO? This helps to make Winters seem less credible without directly refuting anything Winters has said.

 

I have no dog in this fight, so I don't really care, I just thought it was an odd attack.

 

Have  you heard the phrase, "We eat our own cooking"?  The point that Buffett made is that unless David Winters can earn his keeps with his own performance to earn his fees, he should not be go picking a fight with the KO board and drag Buffett in.  I was in the room in the audience when David made his plea with Buffett, and Buffett had said to David and everyone that he had told the BOD of KO of his thoughts on the compensation and that was that. 

 

I have met David at a few times in Omaha and at Wesco; I think he is a very mild manner, good guy.  I just think his activism with KO took to another level that turned the switch on Buffett.

 

I've never met either.  Over the years I've gone to pretty great lengths on various forums to clarify and defend Buffett / BKR from nonsensical and abusive claims.  I've also watched a number of Winters interviews too.  Both seem to be acting very uncharacteristically in terms of past public presentations.  The fact that Buffett used Winter's own performance against him instead of addressing the new issue with KO failed disclosure is very disconcerting.  Maybe they are now even in terms of inflicting repetitional damage on each other and can move on.

 

Right now I think Winters is on to something that shareholders shouldn't just take in stride but should seek to fully understand the implications of future dilution of their ownership. 

 

[cubsfan]

This little episode is reminding me of blowhard Michael Steinhardt trashing Buffett for firing his buddy Gutfreund:

 

https://www.youtube.com/watch?v=RPZHWLlCNB4

 

Saw that one live too. Starts around the 2:30 minute market.

[Guest notorious546]

go buffett

[NoCalledStrikes]

I went to a stock chart comparison and entered KO, BRK.B, SP500, against WGRNX.  All were better investments than WGRNX.

 

Frankly, I was surprised at how poorly he has done since his fund opened nearly 10 years ago.  I have always enjoyed reading David Winters' commentary, but he should have dropped his argument once Warren corrected him for the way David incorrectly figured the potential dilution. (Winters basically treated the options as having a zero strike price). 

 

 

 

 

[thepupil]

His initial math on the KO options was just dumb and reeked of attention grabbing. I honestly don't see how a money manager could forget to account for the cash received upon exercise of stock options. I think he just made a strategic decision to be factually incorrect and get more press insulting KO and Buffett than he would if he made a more measured argument.

 

If I didn't know anything about his attention whore feud with KO, I'd say he's a fine mutual fund manager with a sound strategy (global consumer high quality company's, low turnover, buy and hold) with too high of expenses and cash.

 

I don't think the S&P 500 is the right benchmark for a guy with 2/3 of his fund in international stocks and a decent sized cash holding (looks like about 15% for the past 4 years or so).

 

Since inception he's outperformed the MSCI world by about 40 bps net of a 1.8% (that's way too high!) expense ratio.

 

More recent performance is obviously not great. Still, outperforming the relevant benchmark over 10 yrs with a hefty cash and fee drag indicates some level of skill or luck.

 

[rb]

I have a tremendous respect for Buffett and have done very well by holding BRK. So I'm sorry to say but I think that he is way of the mark here. I also find myself disagreeing with most people in this thread (again unusual). But let's look at this more objectively.

 

Firstly, the Coke situation has nothing to do with David Winter's performance. Ok he's underperformed and his fees are maybe high (I've seen waaay higher). Fine. Don't invest with him. But does it mean that it's ok for KO to steal from shareholders (disclosure: I'm long KO)?

 

Secondly, Winter's wasn't trying to pull any of the usual activist antics... no greenmailing, no request for board seats, just shining a light on management trying to pull a fast one. Also keep in mind that his fund is quite small, so to shine a light on KO he would have needed to use a very big light and make a lot of noise on top of it.

 

Thirdly, WB has many faults on this one. KO has long had very generous compensation for its management and for many of those years he was the largest shareholder and on the board and did nothing - while complaining in the AR about the compensation consulting firm of Ratchet, Ratchet & Bingo. Now KO wanted to take that generous compensation to a new level (yes Winters' math was wrong, but that doesn't change the fact that the plan was still absolutely atrocious even with the correct math) and WB didn't want to vote the proxy! Are you kidding me? Oh I didn't want to upset mgmt so I had a private conversation with them instead.

 

Well sorry, you want to be the paragon of integrity, the aww-shucks guy? Well then you gotta vote the proxy like the rest of us plebes. Besides how are you going to stop the decay in board and management responsibility (that WB himself complains about so much) if you don't vote the proxy and send strong messages to management? Why should they change their behavior when it's working so well for them? At the very least don't pick on the guy who's trying to do the right thing.

[xo 1]

I have a tremendous respect for Buffett and have done very well by holding BRK. So I'm sorry to say but I think that he is way of the mark here. I also find myself disagreeing with most people in this thread (again unusual). But let's look at this more objectively.

 

* * *

Thirdly, WB has many faults on this one. KO has long had very generous compensation for its management and for many of those years he was the largest shareholder and on the board and did nothing - while complaining in the AR about the compensation consulting firm of Ratchet, Ratchet & Bingo. Now KO wanted to take that generous compensation to a new level (yes Winters' math was wrong, but that doesn't change the fact that the plan was still absolutely atrocious even with the correct math) and WB didn't want to vote the proxy! Are you kidding me? Oh I didn't want to upset mgmt so I had a private conversation with them instead.

 

Well sorry, you want to be the paragon of integrity, the aww-shucks guy? Well then you gotta vote the proxy like the rest of us plebes. Besides how are you going to stop the decay in board and management responsibility (that WB himself complains about so much) if you don't vote the proxy and send strong messages to management? Why should they change their behavior when it's working so well for them? At the very least don't pick on the guy who's trying to do the right thing.

 

With respect, I urge you to read again Buffett's rationale for why he chose to urge management privately to reconsider the compensation package and reflect on Buffett's management style (praise publicly, criticize privately), before deciding what the "right thing" is.  I sold my shares in Winters' fund over this debacle, as I concluded his doubling down, when the errors in his math were pointed out to him, suggested to me that he was letting his ego get in the way of rational action.  I don't doubt that Winters was trying to do the right thing - but trying isn't enough.  His tactics never had a chance and his ham-fisted attempt to drag Buffett into the fracas to get his way was ill conceived.  To your final point, notwithstanding your insinuation that Coke management wouldn't change their behavior, in fact the plan was changed.  We can't prove what caused the change, but based on the public evidence, I'm inclined to believe quiet diplomacy was more influential than demogoguery. 

 

With the rise of activism, we are at an instructive time in board-shareholder relations.  It is satisfying to believe the board should send strong messages to management, but reviewing the structure of BRK suggests that trying to influence corporate behaivor through up-down board votes is simplistic.  If your CEO proposes motions that the board opposes, the board needs to change the CEO.  Voting "No" isn't productive. 

[thefatbaboon]

Agree with xo1 on Coke.  This is Buffett's style - he likes to flatter people into performing well.

 

But was quite surprised here regarding his beat down of Winters.  This could end up putting Winters out of business.  And while Winters is far from a  genius, he is a very very long way from the the bottom of the pile.

 

 

 

 

[txlaw]

And while Winters is far from a  genius, he is a very very long way from the the bottom of the pile.

 

I dunno.

 

The underperformance slam may be a bit unfair.  But didn't Winters go on record as saying that the KO comp deal (using his inaccurate numbers) was the biggest scandal since Enron?  And then didn't he release some odd press release last month about KO issuing double secret probation bonus shares?

 

I hate to say it, but Winters seems like he's either gone off the deep end, or is very cynically (and incompetently) playing the "activist" card in order to increase his profile and AUM.  That should probably be worrisome to potential and existing investors.

[VersaillesinNY]

Well, talking about the wolf, the timing couldn't be better; let's take a look at his recently published annual letter.

 

http://www.wintergreenfund.com/downloads/wintergreen_fund_annual_report_20141231.pdf

wintergreen_fund_annual_report_20141231.pdf

[CorpRaider]

I will say Becky Quick did kind of push back a lot more this time with Mr. B.  It was pretty good.  Didn't you end up criticizing the compensation plan as well (non-critical, critical thing that Icahn highlighted for the world)?  Also she sort of got him with the "oh evil PE shops are really LBO shops with tons of debt."  Aren't you deeply and warmly in bed with 3g on a number of LBOs?  Oh...well yes.

 

Winters was actually outperforming until recently.  Not as bad as I would have expected with his huge fee.  I suppose he just annoyed me with the hyperbolic computations he came out with initially, and then he compounded it by continuing to bring BRK into it.  Once he got the kind of tepid support from WEB, he should have let the man alone.

 

 

[Liberty]

I will say Becky Quick did kind of push back a lot more this time with Mr. B.  It was pretty good.  Didn't you end up criticizing the compensation plan as well (non-critical, critical thing that Icahn highlighted for the world)?  Also she sort of got him with the "oh evil PE shops are really LBO shops with tons of debt."  Aren't you deeply and warmly in bed with 3g on a number of LBOs?  Oh...well yes.

 

The devil's always in the details. I don't think Buffett necessarily loves the KO compensation, but he can also not like what Winters has been doing.

 

Same with the PE industry and 3G. He can dislike most PE, but like how 3G operates (they seem to be long-term investors who actually make businesses stronger, rather than just load them up with debt, put lipstick on them, and flip them quickly).

[Guest Schwab711]

I will say Becky Quick did kind of push back a lot more this time with Mr. B.  It was pretty good.  Didn't you end up criticizing the compensation plan as well (non-critical, critical thing that Icahn highlighted for the world)?  Also she sort of got him with the "oh evil PE shops are really LBO shops with tons of debt."  Aren't you deeply and warmly in bed with 3g on a number of LBOs?  Oh...well yes.

 

The devil's always in the details. I don't think Buffett necessarily loves the KO compensation, but he can also not like what Winters has been doing.

 

Same with the PE industry and 3G. He can dislike most PE, but like how 3G operates (they seem to be long-term investors who actually make businesses stronger, rather than just load them up with debt, put lipstick on them, and flip them quickly).

 

Right on. I think it was great to see Buffett react the way he did. I actually thought this issue was over a year ago...

 

Buffett trashing KO management would be a public humiliation to what I imagine are long-term friends. This is just unrealistic for a compensation plan that was reaching but by no means the worst even of the S&P companies. I also agree with a lot of folks that this seems like a marketing move for Winters. Why should folks be able to ride WB's coattails when he knows little-to-nothing about them and has no idea whether they are actually right for investors (my issue with Biglari). I think people should take Buffett for what he is, a very nice guy who was willing to share his work/insights with the world for nothing. He is nothing more than a guy [genius] who wants to leave a legacy just like Graham (at least that's what I get from it). His reaction to Winters is no different than going against his own words to create B shares to avoid Berkshire ETF leaches.

 

It also seems that Buffett is absolutely entitled to bring up Winters' performance. He is paid to outperform!! I don't see a message on his website talking about the lack of outperformance or suggesting investors move on to indexing or the like. He is a salesman (like nearly all money managers without incredible outperformance). I also don't like the idea suggested by some where we change the benchmark for Winters because he holds cash (I understand the EM % argument - but are we going to change the benchmark as his portfolio evolves?). If you hold high % of cash then it is an investment decision like holding KO, there are no adjustments! There's 2 tasks as a money manager:

1. Don't put client money at undue risk

2. Make enough money for clients to compensate for the risk taken on

 

Finally, the math mistakes by Winters, planned or not, is disgusting! He is in charge of billions of dollars! This is a serious responsibility and I would think the mistake deserves acknowledgment. He is paid to be the expert. If you think he deserves a pass on the mistake then I'd love to manage your money. I think managers should be held to the same standards as any professional who takes on life-altering responsibilities (honest mistakes are OK, at-fault mistakes of sufficient size should absolutely be acknowledged and explained (blanking on correct phrase to use). If your investors are uncomfortable after you admit a mistake then maybe the relationship wasn't right for them to begin with. The ethical responsibilities of a money manager should be to advise clients based on their needs/comfort, not sell them on what you need (even if it means you lose a relationship).

 

There's no doubt I will eat these words some day one way or another (or fight off the strict reading of them) but there's definitely a letter vs spirit of what I've written. I do feel strongly that the general idea above is true (which is why I admire Buffett from a business perspective; he has always taken this responsibility extremely seriously). I personally am just starting initial fund-raising and I've already turned down 2 potential clients because they made it clear they cannot handle volatility and had plans for the money they were going to invest. It would be wrong for me to push them into a concentrated fund when really they just want someone to tell them what is safe to invest in (now I go from some fees to nearly zero). Maybe this is unrealistic expectations, maybe it's overly-idealistic, either way it's how I would treat my mother's money. No different than a skilled surgeon referring a patient to someone whose more qualified or experienced. It's about the patient, not the surgeon.

[txlaw]

I think another thing to consider with regards to WEB's proxy vote (or lack thereof) and his b---- slap of David Winters is that he is engaging in a bit of politics to discourage potential activist investors from unfairly targeting his investee companies, and to remind folks that he could be a "white knight" in these types of situations.

 

As Munger said in his letter, we are in the "age of activism."  There are really no size constraints anymore for activists.  Nelson Peltz goes after PEP.  Ackman goes after PG.  Carl Icahn goes after AAPL.  BRK is one of the few big dogs who could build up blocking positions in these types of large companies and vote in a way that sways the passive investors.

[CorpRaider]

Well all that junk about activists and PE shops is just marketing to me (or more accurately to managements and potential sellers of businesses).  Seabury Stanton learned about how passive Mr. B can be and all he did was chisel him a little on the greenmail.  Carl got AAPL to do what WEB advised what....a decade ago?  Just saying, I doubt he has a problem with that.

 

Winters, however, deserved to get nuked.

[KinAlberta]

Well all that junk about activists and PE shops is just marketing to me (or more accurately to managements and potential sellers of businesses).  Seabury Stanton learned about how passive Mr. B can be and all he did was chisel him a little on the greenmail.  Carl got AAPL to do what WEB advised what....a decade ago?  Just saying, I doubt he has a problem with that.

 

Winters, however, deserved to get nuked.

 

Funny, exactly what I thought as I read the above post.  I greatly admire Buffett and have no problem with people changing their stripes over the years  as they learn and see the world differently.  so I also have no problem with someone acting in a seemingly hypocritical fashion over time by blasting someone else for what they themselves did.

 

On the KO issue though Winters clearly bumbled his approach, created new enemies, etc. but if you look at him as just the messenger of a possible point of real fact, if you look at the issue he is raising and not his personality, investment performance, math ability, ethnic background, skin colour or whatever, people have to decide if the actual issue he is raising is legitimate or not.  For investors to be easily distracted by such diversionary tactics is disheartening (both in my respect for Buffett and my expectations of other investors with skin in the game).  I don't own KO except through BRK so it's more of an academic issue to me but like the vast sums of money that have enriched executives via seemingly "innocuous" options grants, is the ability of a board to issue unlimited numbers of shares to executives (as Winters claims) a valid threat to existing shareholders?

 

Please note that when Buffett brought out his WMD article, Buffett was severely criticized, repeatedly, as being a hypocrite and not understanding derivatives etc. and on many occasions I dragged out his article to point out to people that he clearly stated he used derivatives and that his article was about their "daisy chain" risk and not simplistic minded views towards ownership or not.

[merkhet]

The problem was not that Winters pointed out a real flaw in KO (he did). The problem is that he was grandstanding by trying to bully Buffett into supporting him.

 

As the saying goes, "you pays your money, and you takes your chances."

[txlaw]

Well all that junk about activists and PE shops is just marketing to me (or more accurately to managements and potential sellers of businesses).  Seabury Stanton learned about how passive Mr. B can be and all he did was chisel him a little on the greenmail.  Carl got AAPL to do what WEB advised what....a decade ago?  Just saying, I doubt he has a problem with that.

 

Winters, however, deserved to get nuked.

 

Well, I would agree that there is a marketing component to WEB's spiel.  He definitely gets to play the good guy owner for prospective sellers. 

 

Still, I don't think selling people on the "BRK as perfect home" story is incompatible with actually believing that some of this increased activism is harmful because it is: (1) short term-oriented in nature, and/or (2) is unfairly brought in order to market one's investment management services as value-add.  And I don't think WEB's fight with Seabury Stanton can necessarily be use to show that WEB is being a hypocrite.  That fight was a long time ago, and WEB seems to have changed over the years, as many people do.  (Even Uncle Carl is not the same person he was in the 80s.)

 

Of course, given your screen name, I'm guessing you're not quite so perturbed by the "corporate raider" mentality as I am, haha :D

[txlaw]

On the KO issue though Winters clearly bumbled his approach, created new enemies, etc. but if you look at him as just the messenger of a possible point of real fact, if you look at the issue he is raising and not his personality, investment performance, math ability, ethnic background, skin colour or whatever, people have to decide if the actual issue he is raising is legitimate or not.  For investors to be easily distracted by such diversionary tactics is disheartening (both in my respect for Buffett and my expectations of other investors with skin in the game).  I don't own KO except through BRK so it's more of an academic issue to me but like the vast sums of money that have enriched executives via seemingly "innocuous" options grants, is the ability of a board to issue unlimited numbers of shares to executives (as Winters claims) a valid threat to existing shareholders?

 

I think it's fair to say, well, let's forget about Winters' incompetence and/or cynicism, and let's take a look at the actual facts regarding KO's comp.  But you also have to acknowledge the ugly truth that Winters has distorted the facts in a way that undercuts his own arguments regarding the comp package.  He has been pretty hyperbolic, no?

 

Still, I agree that the comp package was excessive.  But I'm one of those few people who thinks that pretty much all of the C-Suites in corporate America are overpaid.  However, I don't know how to fix that problem.  It seems like a one-way ratchet to me.

 

As to diversionary tactics, WEB himself said that the comp package was excessive -- and he said so publicly.  WEB just hammered Winters on CNBC for grandstanding and using WEB's name for the real world equivalent of "click bait."

 

Hell, to me the big problem with WEB and KO is not his non-vote on the comp scheme.  Instead, the problem is what Ackman brought up the other day.  KO sells a lot of product that is terrible for most people's health.  Yet WEB is in complete denial about this, IMO.  I'm a big fan of WEB, but I can't help but turn up my nose at his public endorsements of sugar water and junk food as the food of the gods (and, yes, I'm purposefully being a bit hyperbolic).

[innerscorecard]

I'm a big fan of WEB, but I can't help but turn up my nose at his public endorsements of sugar water and junk food as the food of the gods (and, yes, I'm purposefully being a bit hyperbolic).

 

I enjoyed reading the parts of The Snowball that talked about Buffett's careful counting of calories and his incentives to his children to lose weight. And we know he regularly consults doctors and works out a lot too. But no one wants to hear that. It's much more entertaining and comforting to hear about some old guy drinking six cokes during a single interview. It's like how everyone loves hearing about some old retired guys who smoke cigarettes and drink whiskey every day and still die at an old age.

[kevin4u2]

 

Hell, to me the big problem with WEB and KO is not his non-vote on the comp scheme.  Instead, the problem is what Ackman brought up the other day.  KO sells a lot of product that is terrible for most people's health.  Yet WEB is in complete denial about this, IMO.  I'm a big fan of WEB, but I can't help but turn up my nose at his public endorsements of sugar water and junk food as the food of the gods (and, yes, I'm purposefully being a bit hyperbolic).

 

That argument doesn't work.  Who should decide what is good or not for my body?  You?  The government? Bill Ackman?

 

This is a major problem today.  Most people believe they are responsible for the decisions of other adults.  When someone tries to take away another persons ability to choose they are treading on dangerous grounds for me.  Personal responsibility is a huge problem in the west.  If you don't want to hold individual responsible for their health why are you holding Coke responsible?  You can't have it both ways.  I would say a lot of harm is done to individuals when the government tells them they are not responsible either. 

 

Let me be clear.  KO doesn't hold a gun to anybody's head and force them to drink their products, yet you want to hold a gun to KO's head... and claim the moral high ground in doing so. 

 

WEB is free to make whatever endorsements he wants.  Do you want to hold the proverbial gun to his head too?  Ultimately who should decide? 

 

It is very freeing when you believe that everyone is free to make their own decision and that they are also free to face the consequences of those decision.  The government is in the business of removing consequences, for bankers to Coke.  Great discussion... Thanks.