Wednesday, July 30, 2008
Monday, July 28, 2008
Q: Everybody else is running for the exits and melting down and Fairfax just had its credit rating upgraded so how did you pull this off?
A: “Very simply it goes back to this 100-year storm concern of ours. We took action that reflected our belief that everything was headed downward. Predicting rain doesn’t count, but building an ark does. And that’s what we did. We built an ark and we had a little bit of good fortune. This is why our rating went up.”
“Our focus has had a tremendous effect on our results. Last year we made in excess of US$1.1 billion and in the first quarter of 2008, US$631 million. Our capital, shareholders equity in 2006, was US$2.9 billion and it grew by 50%.”
Q: What was your thinking that led to these results?
A: “We have always taken a long term view and in 2003 we started worrying. We were concerned about asset-backed paper. We saw the moral hazard in all this credit that we saw was being blended and blown out. This was because interest rates were dropped to 1% to bail out the technology companies after the bubble burst in 1999 and we saw that this would lead to the real estate and auto loans and credit card problem. We saw that half of consumer spending was from home equity loans. So we protected ourselves. Credit default swaps are why our ratings went up.”
Saturday, July 26, 2008
Thursday, July 24, 2008
One never knows until long after the fact, of course, when stock prices reach the exact top or bottom of a given cycle. And, besides, trying to pick precise tops and bottoms always turns out to be a pointless, unprofitable game. So don't even try.
Have I hedged myself sufficiently? Good. For, as it happens, I believe July 15, 2008 will turn out to be as good a date as any to mark the end of the long, painful bear market financial stocks have endured for the past 18 months. And more to the point, it marks the beginning of the greatest financial stock bull market in our lifetime, one that will be much broader than the bull market that began in 1990.
Caution! The observation above is offered to investors only. If you can't stand the idea of seeing another, say, 20% on the downside, please stop reading at once and head back to CNBC.com. If you measure your investment horizon in weeks or months, please, for your own good and sanity, leave this site pronto.
But if you understand what drives stock prices, and have an investment time horizon of at least one year, feel free to keep reading. And if you are a patient value investor, get out your highlighter and get ready to buy stocks.
I believe the current valuations of scores—even hundreds—of financial companies are wildly out of whack with the companies' long-term earnings potential. The companies are extraordinarily undervalued, in my view. In the vast majority of cases, I can get comfortable with their potential future credit losses and (in the cases where they're needed) the possibility of future, dilutive capital issuance.
With the gap between current market values and business values so wide, investors shouldn't even worry too much whether July 15th was indeed rock bottom for the stocks. The margin for error today is so wide that any investor with at least a one-year horizon and a little analytical ability can pick huge winners. We wouldn't buy across the board, but the vast majority of the depressed financial stocks will survive, recover, and deliver high investment returns from these levels.
Monday, July 21, 2008
Tuesday, July 08, 2008
John Templeton, the billionaire U.S. philanthropist who made his fortune as the pioneer of global investing in the postwar boom, has died. He was 95.
Templeton died today at Doctors Hospital in Nassau, the Bahamian island that was his home, his spokesman, Don Lehr, said in a statement. The cause was pneumonia.
The Templeton Growth Fund was one of the first mutual funds to give Americans access to investments in companies abroad. Since its start in 1954, the fund has returned 13.5 percent a year on average, meaning a $10,000 investment would be valued at about $8.5 million as of March 31, including reinvested dividends and capital-gains distributions.
Like Warren Buffett, Templeton developed a cult following, with fund investors flocking to annual meetings to hear his pronouncements. Money magazine in 1999 called him ``arguably the greatest global stock picker of the century.''
A devout Presbyterian, Templeton may be remembered as much for financing the study of spirituality as for his canny investments. In 1972, he set up the $1 million-plus Templeton Prize. Mother Teresa was the first recipient, six years before she collected the Nobel Peace Prize. He always made sure that his award offered more money than the Nobel Prizes.
``What we say about investments isn't as lasting as what we say about spiritual matters,'' Templeton, who was a board member of the American Bible Society, said in a 1993 interview from his home in the Bahamas.
Wednesday, July 02, 2008
Warren Buffet: I would rather have Bill, if he will, give me the main points.
Bill Gates: Well it’s not completely well defined. It’s a phrase that I used in a speech at Harvard a year ago, because I totally believe in markets as such powerful forces for drawing out innovation and creating things that are sustainable. And yet, you do get trapped in this situation where the markets serve where the dollars are, so you don’t get markets meeting the needs of the poorest. And so how do you bootstrap or support the needs of the poorest so markets are reaching out to them. I mean, when I view the last hundred years as an experiment in how good markets are, the answer is very, very clear and very strong. It’s one of those things that’s so clear people won’t even discuss it with you anymore. Like in this [Edward] Teller biography: he says, Look, if he didn’t believe in innovation, he would have been a communist. If the economy is a zero-sum situation, then you ought to try some crazy sharing thing. It’s only the innovation and pie-growing activity that made Teller feel comfortable with the capitalistic approach. And I think that that’s been validated.
You often hear people saying that companies should do something besides profit maximization. And it’s amazing how strong a message is hidden in words like “diversity” or the broad term “corporate social responsibility.” Warren and I were just at the Microsoft CEO Summit for the last couple days and it was amazing how many of the talks were about how a company needs to have core values of who they are and what they do as the thing that makes the employees feel they have a purpose and guides their action. And how that needs to be really at the center, even more so than the short-term profit metrics. Jack Welch was very good on that and Lee Scott [CEO of Wal-Mart] was very good on that, I think in a very sincere way. I think it’s more true all the time.
Bill George [of Harvard Business School] ran the leadership panel, and he was saying how the younger generation really wants to go to work with people who have a purpose. So what I’m saying is when people write down that purpose, when they write down their values, that an element of that should be: what can we do based on our skill set, our innovators, whatever unique capacities we have as a company--what can we be doing for the poorest 2 billion? And that can either be taking more risk in terms of trying to develop markets there, which is C.K. Prahalad-type stuff, or just doing things like the Merck donation that are not profit seeking and yet not giving up huge percentage of profit.
So somebody can read the words “creative capitalism” and say, “Okay, Bill Gates said that you should serve the poorest 2 billion and ignore profit.” That is not what I intend to say at all, but then I am being a bit ambiguous about how far you go in being willing to give up something. Am I saying one percent? Two percent? Three percent? Nobody who sets these dual roles is very good about being clear. I mean, what do they say you’re supposed to give up for corporate social responsibility. Well, they’re not willing to be numeric because they feel like the two goals, profit and social responsibility, aren’t totally at odds over time—or diversity, or whatever the value is.
How much would you pay to dine with the Oracle of Omaha? Warren Buffett has already raised $650,000 for the rights to dine with him and the bidding is still open.
Find out why the icon of the investment world is putting the proceeds from the auction to philanthropic use.