08 Mar 2006

The Wizard of Omaha

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I bought a share of Berkshire Hathaway’s B stock back in 2000, and allowed it to sit around in my portfolio as a mascot until very recently. It did increase in value almost 70% over more than five years, but Nucor (one of Karen’s picks) has done about as well in one year, and Nucor pays a dividend. True, Berkshire treated me better than JDSU, Pacific Century Cyberworks, or Global Crossing did back in the tech wreck. But my investing philosophy has developed since then, and Berkshire Hathaway neither performed well, nor met my investment criteria. After five years, I had also gotten tired of Warren Buffett’s hype. So I sold that share.

John Markham, in his column in MSN Money today, IMHO, hit the Buffet nail right on the head.

Oh, lords of the market, let this be the last straw. The last paean from the pious. The last time we must see simpering reporters, Rotarians and retirees blow kisses to a man once celebrated as the Oracle of Omaha but now best described as the Natterer of Nebraska.Surely there was a time when Warren Buffett was a chief executive worth studying, and even investing alongside. But it sure seems like that time is long past, particularly in contrast to a couple of similar, but much better, conglomerateurs that I’ll introduce you to in a moment…

..Buffett released the fiscal 2005 earnings report of his holding company, Berkshire Hathaway (BRK.A), on Saturday, as well as an annual report and 22-page chairman’s letter.

And when you get past all the juvenile humor, unseemly criticism of rivals, self-promotion and homilies, you are left with one impression: This is one heck of a way to disguise the fact that — outside of an accounting gain — earnings were down 29% in 2005. And that shares turned in a fifth-straight year of underwhelming performance in the only metric that investors truly care about: the advance of the price.

Did I say the stock price is all that matters? Gosh, that seems so craven. I am so sorry to bring it up. But that is what investors are paying him for, isn’t it? To boost earnings in a way that encourages new buyers to be more aggressive than sellers, making the price go up?

That is why we buy most stocks. But Berkshire Hathaway is more a cult than a security.

Just read the 2005 report, and you will see that it is largely filled with boasts that the chairman has goosed book value by slapping together an insurance, retail, media and construction conglomerate that looks more like something the cat dragged in than a streamlined earnings machine.

Needless to say, I strongly agree. Buffett has declined to pay dividends, arguing for years that he can do a better job of investing Berkshire stockholders’ profits than they can. The record of the last five years proves that he can’t.

3 Feedbacks on "The Wizard of Omaha"




Sorry, but I strongly agree with Markham on this one. I think Buffett has succeeded in marketing an appealling public image as a substitute for real performance.

The Dali Lama of Marrero

You were right. This guys sucks. Ooops!



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