Gold Standard Causes Depressions

[bmichaud]

where does it say in the letters he was shorting stocks as a hedge? Can you link to it please? I missed that part and would love to be enlightened.

 

 

Read any of his descriptions on "generals - relatively undervalued" - it's frickin pairs trading. How can you implement a pairs trade without shorting something?

 

Take a run through his letters and let me know why he invested in workouts and private companies when he could find net-nets.

 

So you are making it up? where does it say he hedged his portfolio by selling stocks short? where does it say he did pairs trading? is that your proof? that one passage you quoted? if so you are doing nothing but projecting and wishful thinking that Buffett is some kind of market timer.

 

Where does he say he shorted stocks as a hedge against his longs? I've read his letters. Selling short is not the same as investing in workouts. If you can't produce the quote then I suggest you quit spreading useless mis information as if it were fact.

 

 

Aye aye captain Burke.

 

waiting for the link, quote, or reference.

 

Again, read the description of the category and answer me why he is worried about "reducing the risk from an overall change in valuation standards".

 

http://pragcap.com/wp-content/uploads/2010/02/BP14.pdf

 

If he liked a company, why would he be worried about an overall change in valuation standards?

 

Read the Snowball - talks about him shorting Caterpillar, Alcoa and Deere to protect against a market decline.

[bmichaud]

You guys are nit picking quotes from him. He says that nobody should ever borrow money, yet he borrowed up to twenty five percent of his fund's net worth back running BPL. He was cash poor after liquidating BPL and pouring everything into BRK. Guess how he built up half a billion non BRK net worth? Borrowing money. He says to not make macro calls, yet he took a very explicit position against the USD. He made millions on a zero coupon treasury bet back in the 90s.

 

He doesn't care about what the market does because he is running a corporation that is diversified, has a substantial cash position, generates steady cash flow from utility businesses, and stocks are a small part of smaller part of BRKs net worth than they used to be.

[bmichaud]

You guys are nit picking quotes from him. He says that nobody should ever borrow money, yet he borrowed up to twenty five percent of his fund's net worth back running BPL. He was cash poor after liquidating BPL and pouring everything into BRK. Guess how he built up half a billion non BRK net worth? Borrowing money. He says to not make macro calls, yet he took a very explicit position against the USD. He made millions on a zero coupon treasury bet back in the 90s.

 

He doesn't care about what the market does because he is running a corporation that is diversified, has a substantial cash position, generates steady cash flow from utility businesses, and stocks are a small part of smaller part of BRKs net worth than they used to be.

 

you're projecting. He never was a pairs trader in BP. And you are saying the only reason he is buying now is because he always has money coming in? He has always had money coming in but there are years when he is a net Seller of stocks? How do you explain that?  He is not a market timer. And even if he was, you are FADING him right now and I can't think of one person who got rich fading Buffett.

 

I attempt to operate by facts. Everything I have said about WEB is backed up by stuff that was actually written. He wrote himself about pairs trading - I provided the link above. You obviously like to operate on conjecture, as evidenced by your 100% rejection of what he wrote based on how you would like to interpret WEB. I did not say the only reason he is buying now is b/c he has cash coming in - I said he does not care about the market b/c:

.....he is running a corporation that is diversified, has a substantial cash position, generates steady cash flow from utility businesses, and stocks are a small part of smaller part of BRKs net worth than they used to be.

 

 

Yet again, another productive debate with you. I am already looking forward to the next.

[bmichaud]

Peter, go easy on the guy he made an honest assumption. He just forgot to mention it was an assumption.

 

On the subject of Buffett shorting stocks. I have not found any statement ever mentionning him shorting anything. Francis Zhou in one of it's interview mentions Buffet made a short in the 50's and almost lost it's shirt, but I could never find the concrete data about it.

 

BeerBaron

 

 

As I said above - read the Snowball....

[moore_capital54]

Great Post, Burke, and I fully agree with you. Bmichaud will not benefit from these low prices with the way he has constructed his portfolio...

 

Also, Bmichaud claims Buffett was "cash poor" after liquidating BPL, I either I misunderstood or thats what he said? Well in fact Buffett had about $17 million in cash when he liquidated BPL, the other 7-8 million was his stake in Berkshire Hathaway and the Illinois Bank.

 

He was definitely not cash poor.

 

 

[bmichaud]

Moore that proves you don't actually read what I say. This was my exact quote:

 

"He was cash poor after liquidating BPL and pouring everything into BRK."

 

Not that difficult.

[moore_capital54]

Moore that proves you don't actually read what I say. This was my exact quote:

 

"He was cash poor after liquidating BPL and pouring everything into BRK."

 

Not that difficult.

 

I am sorry bmichaud but I reread your quote and still don't understand. You say he was cash poor after liquidating BPL and pouring everything into BRK, from this I infer that you believe Buffett was cash poor upon closing the Buffet Partnership Funds, ?

 

The BRK position was a position in the BPL Funds which was distributed to BPL Limited Partners Pro Rata as part of the NAV of the fund. Buffet and Suzies stake of $25 million at the time from the total $106 million in NAV was distributed to them as follows:

 

Roughly $17 million in cash, and the rest in the form of shares of BRK and I believe the Bank of Illionois, and possibly one other one I can't remember.

 

So when was Buffett Cash poor?

[bmichaud]

He took his BPL cash and bought more BRK. Everything he had went into BRK post BPL liquidation. He then had to start his non-BRK net worth from scratch.

 

The circularity of this entire debate would be broken if we all read Schroder's WEB bio, the Snowball. All of this stuff - the shorting, the cash poorness - is in there. I guess I made the faulty assumption that the so called WEB experts on here have read it.

[bmichaud]

It's extremely impressive. It's one of the most overlooked aspects of his overall career, IMO. He's probably at almost $1B now since the financial crisis since he had what $500mm then?

[bmichaud]

It's extremely impressive. It's one of the most overlooked aspects of his overall career, IMO. He's probably at almost $1B now since the financial crisis since he had what $500mm then?

 

I agree I think that's probably more impressive than his record at brk. It's astounding actually.  Didn't he have his money in UST and start investing in stocks again in 2008? I think he stated that in his NYT article.

 

 

Ya he was 100pc USTs before October 2008: http://www.nytimes.com/2008/10/17/opinion/17buffett.html

 

 

[bmichaud]

It's extremely impressive. It's one of the most overlooked aspects of his overall career, IMO. He's probably at almost $1B now since the financial crisis since he had what $500mm then?

 

I agree I think that's probably more impressive than his record at brk. It's astounding actually.  Didn't he have his money in UST and start investing in stocks again in 2008? I think he stated that in his NYT article.

 

 

Ya he was 100pc USTs before October 2008: http://www.nytimes.com/2008/10/17/opinion/17buffett.html

 

my reading of Buffett is that he will go against his best instincts at market extremes, like he apparently did in late 60s and again in 1999 with is bet against the index. If he did do any pair trades it seems he was quite picky about the set up, that they had to be "apples to apples". I wonder if something like a long oracle short salesforce would quaulify?

 

Ya it would be interesting to know. You could get killed on the CRM part of that trade. I'd say more like long HPQ short IBM, or long PEP short KO, but even that is dangerous. I think using a sector ETF works a lot better for hedging out market risk. I read somewhere HFs have been buying Citi and shorting BAC against it - I'd rather buy either or and short the XLF in order to avoid issue specific events such as the WEB preferred announcement.

[moore_capital54]

He took his BPL cash and bought more BRK. Everything he had went into BRK post BPL liquidation. He then had to start his non-BRK net worth from scratch.

 

The circularity of this entire debate would be broken if we all read Schroder's WEB bio, the Snowball. All of this stuff - the shorting, the cash poorness - is in there. I guess I made the faulty assumption that the so called WEB experts on here have read it.

 

This is the first  I hear that Buffett invested his post BPL cash in buying more BRK shares, Please enlighten us with this quote from the book...

 

My understanding was that he always maintained a significant personal portfolio , his initial BRK stake was roughly $7 million or so and that is the same stake that has grown to $40 billion now, his other $17 million or so is what is now worth $1 Billion or $500 million outside of BRK.

 

I believe you are mistaken but would appreciate being shown otherwise...

 

[bmichaud]

He took his BPL cash and bought more BRK. Everything he had went into BRK post BPL liquidation. He then had to start his non-BRK net worth from scratch.

 

The circularity of this entire debate would be broken if we all read Schroder's WEB bio, the Snowball. All of this stuff - the shorting, the cash poorness - is in there. I guess I made the faulty assumption that the so called WEB experts on here have read it.

 

This is the first  I hear that Buffett invested his post BPL cash in buying more BRK shares, Please enlighten us with this quote from the book...

 

My understanding was that he always maintained a significant personal portfolio , his initial BRK stake was roughly $7 million or so and that is the same stake that has grown to $40 billion now, his other $17 million or so is what is now worth $1 Billion or $500 million outside of BRK.

 

I believe you are mistaken but would appreciate being shown otherwise...

 

 

I will stand corrected if Alice Schroder is lying in the Snowball. I don't have the book with me at the moment, but will post the section tomorrow night.

 

He essentially went on a buying spree after the liquidation, buying BRK, Diversisifed Retailing, Blue Chip stamps etc...Then all of it was eventually rolled into BRK. There's a neat chart in the book that shows the massive web of companies he owned through BRK, Diversified and Blue Chip among others. The SEC dudes that were investigating him and Munger regarding a transaction involving a financial company in california (can't remember the exact details at the moment) couldn't believe the complex web Buffett had created. Pretty cool actually.

[bmichaud]

It's extremely impressive. It's one of the most overlooked aspects of his overall career, IMO. He's probably at almost $1B now since the financial crisis since he had what $500mm then?

 

I agree I think that's probably more impressive than his record at brk. It's astounding actually.  Didn't he have his money in UST and start investing in stocks again in 2008? I think he stated that in his NYT article.

 

 

Ya he was 100pc USTs before October 2008: http://www.nytimes.com/2008/10/17/opinion/17buffett.html

 

my reading of Buffett is that he will go against his best instincts at market extremes, like he apparently did in late 60s and again in 1999 with is bet against the index. If he did do any pair trades it seems he was quite picky about the set up, that they had to be "apples to apples". I wonder if something like a long oracle short salesforce would quaulify?

 

Ya it would be interesting to know. You could get killed on the CRM part of that trade. I'd say more like long HPQ short IBM, or long PEP short KO, but even that is dangerous. I think using a sector ETF works a lot better for hedging out market risk. I read somewhere HFs have been buying Citi and shorting BAC against it - I'd rather buy either or and short the XLF in order to avoid issue specific events such as the WEB preferred announcement.

 

C did decouple a bit recently so I can see that. I would think a long jpm short bac trade might be better pair. I am sure there are people shorting bac and going long usb or wfc.

 

BAC is definitely the crappier company out of all of those, but at these levels I would not feel comfortable shorting against a higher quality name such as JPM or WFC since it could easily double before one of the latter two do.

[moore_capital54]

He took his BPL cash and bought more BRK. Everything he had went into BRK post BPL liquidation. He then had to start his non-BRK net worth from scratch.

 

The circularity of this entire debate would be broken if we all read Schroder's WEB bio, the Snowball. All of this stuff - the shorting, the cash poorness - is in there. I guess I made the faulty assumption that the so called WEB experts on here have read it.

 

This is the first  I hear that Buffett invested his post BPL cash in buying more BRK shares, Please enlighten us with this quote from the book...

 

My understanding was that he always maintained a significant personal portfolio , his initial BRK stake was roughly $7 million or so and that is the same stake that has grown to $40 billion now, his other $17 million or so is what is now worth $1 Billion or $500 million outside of BRK.

 

I believe you are mistaken but would appreciate being shown otherwise...

 

 

I will stand corrected if Alice Schroder is lying in the Snowball. I don't have the book with me at the moment, but will post the section tomorrow night.

 

He essentially went on a buying spree after the liquidation, buying BRK, Diversisifed Retailing, Blue Chip stamps etc...Then all of it was eventually rolled into BRK. There's a neat chart in the book that shows the massive web of companies he owned through BRK, Diversified and Blue Chip among others. The SEC dudes that were investigating him and Munger regarding a transaction involving a financial company in california (can't remember the exact details at the moment) couldn't believe the complex web Buffett had created. Pretty cool actually.

 

You see, you have  been wasting our time posting and making assumptions and now you can't even remember what it is that you read.

 

Let me refresh your memory, Buffett, received a stake in BRK and some other companies as part of his share of the NAV in BPL, additionally he received a distribution of roughly $17  million in cash. This was not even in the book, but is known by investors who have followed Buffett and have calculated the value of BRK shares as part of the BPL portfolio and knew Buffets stake was $25m out of a total NAV of $106m on the date of distribution (roughly 26% of the NAV).

 

Buffett was never in a situation after BPL Partners where he was low on cash personally, he used some of that cash to invest in companies personally but most investments were made through BRK, eventually BRK acquired Blue Chip Stamps in which Buffett and Suzy gained more shares in BRK as did Munger, but your comments about Buffett being low on cash are completely wrong.

 

He had most of his net worth outside of Berkshire and it was substantial. This is the cash that grew to the $500 million he mentioned to Paulson in 2008.

 

A perfect example of your intelligent mind misunderstanding something, then running with it, and then preaching to the members of this board. It's quite analogous to your views on Macro as well.

 

 

[bmichaud]

WTF are you talking about? Seriously guy.

 

I'll post a nice long passage from the book tomorrow night that details his actions post liquidation and how he had to start from ZERO with his non-BRK net worth. He drew down a $50,000 salary and some directors fees, but other than that he was cash poor. Get over yourself.

[Guest Hester]

Buffett wrote in his 1964 partnership letter that he was employing a strategy of buying good companies at 10 or 12 times earning and selling comparitively lower quality companies at like 20 times earnings and waiting for the divergence to close. He called it "generals relatively undervalued."

 

At the 2008 meeting someone asked about this because it was a little vague. They asked whether he was pair trading. Buffett's response.

 

"Yes, we didn’t know we started so early. Ben Graham did it in 1920. He did pair trading. He was right 4 out of 5, but the last one would kill him. We shorted the market to some degree. We would borrow stocks from universities. We were early in this. We wouldn’t short a stock because it was unattractive but as a general market short [hedge]. I would borrow from the Treasurer of Columbia [university], “which ones do you want”, “just give me all of them”. It provoked some odd looks when I told the universities I wanted to short all of their stocks. It was not a big deal. We might have made a little money on it in the 1960s, but it is not something we do these days. If you have good long ideas on businesses that are undervalued, it is not necessary to short. 130/30 [simultaneously holding a 130% exposure to a long portfolio; and a 30% exposure to a short portfolio] is being marketed today. Many will sell you the idea of the day. No great statistical merit.

 

CM: We made our money by being long wonderful businesses, not by using a long-short strategy."

 

 

 

Buffett also shorted AT&T when he was in school just mainly to piss off his teachers, because they all held it. I think that was in the Snowball.

 

Edit:Read through the thread and took some reduncies out

 

[alwaysinvert]

Snowball, p. 343

 

As he had promised - but on a scale that might have staggered his partners, had they known - Buffett used the cash he got from the partnership to buy still more Berkshire and Diversified for his own account.

 

p. 395

 

While he was buying, however, most of the stocks that Buffett had accumulated were faltering. As 1974 began, stocks for which he had paid $50 million had lost a quarter of their value. Berkshire, too, started to slide, down to $64 per share. Some of the former partners who had kept the stock began to worry about whether they had made a mistake.

 

Buffett saw it just the opposite way. He wanted to buy more Berkshire and Blue Chip. But "I'd run out of gas. I had used all the $16 million of cash I got out of the partnership to buy stock in Berkshire and Blue Chip. So all of a sudden I woke up one day and had no money at all. I was getting $50.000 a year salary from Berkshire Hathaway and some fees from FMC. But  I had to start my personal net worth over again from zero."

 

He was now very, very rich but cash-poor. The companies he controlled, especially Berkshire Hathaway, had cash to buy stocks however.

[bmichaud]

Thank you Hester and alwaysinvert. I appreciate it!!

[ubuy2wron]

Snowball, p. 343

 

As he had promised - but on a scale that might have staggered his partners, had they known - Buffett used the cash he got from the partnership to buy still more Berkshire and Diversified for his own account.

 

p. 395

 

While he was buying, however, most of the stocks that Buffett had accumulated were faltering. As 1974 began, stocks for which he had paid $50 million had lost a quarter of their value. Berkshire, too, started to slide, down to $64 per share. Some of the former partners who had kept the stock began to worry about whether they had made a mistake.

 

Buffett saw it just the opposite way. He wanted to buy more Berkshire and Blue Chip. But "I'd run out of gas. I had used all the $16 million of cash I got out of the partnership to buy stock in Berkshire and Blue Chip. So all of a sudden I woke up one day and had no money at all. I was getting $50.000 a year salary from Berkshire Hathaway and some fees from FMC. But  I had to start my personal net worth over again from zero."

 

He was now very, very rich but cash-poor. The companies he controlled, especially Berkshire Hathaway, had cash to buy stocks however.

This position was confirmed by another biography, I have read pretty much all of them and I can remember a passage where Warren compained of being asset rich and cash poor, according to this biographer he solved this problem by borrowing and investing personaly and the bulk of his non BRK fortune was created through this method. So basically his non BRK fortune which was close to zero in the mid seventies was built through a judicious use of margin. It would be an interesting exercise to calculate wether BRK or his personal portfolio has had the higher rate of return.

[moore_capital54]

Honestly, I don't trust the way Alice Schroeder writes stuff at all. As I recalled he had roughly $17 million in cash when he liquidated the BPL partnership. I have obviously been proven wrong but having a hard time believing Buffett spent down his entire $17 million cash wad into just BRK/Dr/and Blue Chip Stamps, there must have been some fixed income in there or other liquid securities, making it more believable that he was just fully invested and ran out of gas...

 

In any case, I cede to Bmichaud the win in this debate.

[PlanMaestro]

I struggled to find where to publish this interesting historic economic data. And since it would generate some crazy comments anyway, I chose the craziest related thread i could find.

 

On James Grant, the gold standard and the FED

 

http://www.econbrowser.com/archives/2012/02/why_not_abolish.html