Alice Schroeder : NBC Interview

Buffett: Market Meltdown Without Bailout

CNBC INTERVIEW TRANSCRIPT: Warren Buffett Explains His $5B Goldman Investment

BECKY QUICK: We know you get all kinds of deals, all kinds of people who come knocking asking you to jump in. You've said no to everything to this point. Why is this the right deal at the right time?

WARREN BUFFETT: Well, I can't tell you it's exactly the right time. I don't try to time things, but I do try to price things. And I've got a formula that says bet on brains, and bet of them when it's the right type of deal. And in this case, there's no better firm on Wall Street. We've done business with them for years, with Goldman, and the price was right, the terms were right, the people were right. I decided to write a check.

BECKY: Does the backdrop of the Federal government potentially getting involved with a massive bailout plan for Wall Street, does that have anything to do with this deal?

BUFFETT: Well, I would say this. If I didn't think the government was going to act, I would not be doing anything this week. I might be trying to undo things this week. I am, to some extent, betting on the fact that the government will do the rational thing here and act promptly. It would be a mistake to be buying anything now if the government was going to walk away from the Paulson proposal.

BECKY: Why would that be a mistake? Because the institutions would collapse, or because you could get a better price?

Full Transcript Part 1

Full Transcript Part 2

Buffett on Goldman Sachs

Buffett to Invest $5 Billion in Goldman

Berkshire's plan "is a sign of confidence from one of the nation's most respected investors," said James Angel, a finance professor at Georgetown University, who added that "sharp investors" now are "sniffing around the wreckage of the credit crunch to pick up good assets on the cheap."

The deal is structured in two parts, giving Berkshire a stream of cash and potential ownership of roughly 10% of Goldman. Berkshire will spend $5 billion on "perpetual" preferred shares of Goldman. These are not convertible into equity but pay a fat 10% dividend.

Berkshire also will get warrants granting it the right to buy $5 billion of Goldman common stock at $115 a share, which is 8% below the 4 p.m. closing share price Tuesday of $125.05. At Goldman's roughly $50 billion market value, based on that closing price, exercising those warrants would give Berkshire about a 10% stake in Goldman.

Goldman also will go to the public to raise at least a further $2.5 billion by selling common shares. Once it does, Berkshire's stake -- if it has exercised the warrants -- would fall to about 7%. Goldman will have the right to repurchase the preferred shares at any time for a 10% premium.

Full Article

What can we learn from Buffett's deal, please read: Lollapalooza Investing

A Message by George Carlin

The paradox of our time in history is that we have taller buildings but shorter tempers, wider Freeways , but narrower viewpoints. We spend more, but have less, we buy more, but enjoy less. We have bigger houses and smaller families, more conveniences, but less time. We have more degrees but less sense, more knowledge, but less judgment, more experts, yet more problems, more medicine, but less wellness.

We drink too much, smoke too much, spend too recklessly, laugh too little, drive too fast, get too angry, stay up too late, get up too tired, read too little, watch TV too much, and pray too seldom.

We have multiplied our possessions, but reduced our values. We talk too much, love too seldom, and hate too often.

We've learned how to make a living, but not a life. We've added years to life not life to years. We've been all the way to the moon and back, but have trouble crossing the street to meet a new neighbor. We conquered outer space but not inner space. We've done larger things, but not better things.

We've cleaned up the air, but polluted the soul. We've conquered the atom, but not our prejudice. We write more, but learn less. We plan more, but accomplish less. We've learned to rush, but not to wait. We build more computers to hold more information, to produce more copies than ever, but we communicate less and less.

These are the times of fast foods and slow digestion, big men and small character, steep profits and shallow relationships. These are the days of two incomes but more divorce, fancier houses, but broken homes. These are days of quick trips, disposable diapers, throwaway morality, one night stands, overweight bodies, and pills that do everything from cheer, to quiet, to kill. It is a time when there is much in the showroom window and nothing in the stockroom. A time when technology can bring this letter to you, and a time when you can choose either to share this insight, or to just hit delete...

Remember; spend some time with your loved ones, because they are not going to be around forever.

Remember, say a kind word to someone who looks up to you in awe, because that little person soon will grow up and leave your side.

Remember, to give a warm hug to the one next to you, because that is the only treasure you can give with your heart and it doesn't cost a cent.

Remember, to say, 'I love you' to your partner and your loved ones, but most of all mean it. A kiss and an embrace will mend hurt when it comes from deep inside of you.

Remember to hold hands and cherish the moment for someday that person will not be there again.

Give time to love, give time to speak! And give time to share the precious thoughts in your mind.

AND ALWAYS REMEMBER:

Life is not measured by the number of breaths we take, but by the moments that take our breath away.

Christopher Hohn Rethinks Activism

Christopher Hohn is beside himself. It’s a dreary rain-swept morning in early September, and Hohn, looking more like a graduate student, with his rimless glasses and rumpled shirt, than the most feared shareholder activist in Europe, strides briskly across a conference room in his hedge fund’s stark, glass-partitioned, modern headquarters in Mayfair, London, and drops down into a black leather chair. The intensely private, 41-year-old founder of the Children’s Investment Fund Management (UK) has just made a rare public announcement and still wears the pained expression of the reluctantly exposed: TCI is joining with New York–based Atticus Capital to once again challenge the management of German stock exchange operator Deutsche Börse Group.

“The company’s valuation has collapsed this year, and shareholders are suffering,” declares Hohn. ”We’re frustrated with Deutsche Börse.”

These are frustrating times, indeed, for Hohn, the golden boy of activist investing, who rose to fame by halting Deutsche Börse’s 2005 bid for the London Stock Exchange and who last year single-handedly sparked the sale of ABN Amro Bank — the biggest banking transaction in history. In five years his assets under management have soared 30-fold, to more than $15 billion.

But 2008 has been another story entirely. Hohn is struggling seemingly everywhere — with markets, investment targets, uneasy investors and, increasingly, with himself. His high-profile effort to challenge corporate culture in Japan by trying to take a commanding stake in one of its largest energy wholesalers has been thwarted by the Japanese government. And in late May he had to endure a public grilling for more than an hour in open court in New York City in his yearlong battle with CSX Corp., the U.S. railroad group that operates an extensive network of freight lines and port connections on the East Coast.

Above all, after a heady run of eye-catching returns, Hohn’s flagship, the Children’s Investment Master Fund, is losing money. And Deutsche Börse is a very big reason why. With the global credit crisis hammering financial stocks, the German exchange’s shares have plunged by more than half since January, dragging down the returns of TCI’s flagship fund, which lost 12 percent through June 30 — a painful experience for a manager whose highly concentrated, long-biased portfolio had delivered net annualized returns of 42 percent in its first four years through December 2007.

Full Article

Warren Buffett and David Sokol: Smartest Guys in the Room

Constellation Energy: Stars Align for Buffett

To read my comments on Constellation Energy, please visit:

Lollapalooza Investing

Warren Buffett's Berkshire Hathaway Inc. is reaching into its deep pockets to give a steady hand to Constellation Energy Group Inc. and, at the same time, grab a bargain.

Berkshire's MidAmerican Energy Holdings Co. said Thursday that it will buy Constellation for $4.7 billion and give it an immediate $1 billion infusion after shares of the nation's largest wholesale power seller plummeted and liquidity concerns had analysts worried it would go out of business.

"Obviously we're in unprecedented times," MidAmerican President and CEO Gregory Abel said. "Liquidity and solvency issues are a top priority for many companies. We don't have any of those concerns, again, at MidAmerican and Berkshire."

Des Moines, Iowa-based MidAmerican will pay $26.50 per share in cash for Baltimore-based Constellation, well off the utility's 52-week high of $107.97 reached Jan. 8. The shares traded as high as $67.87 last week before hitting a low of $13 Tuesday.

Full Article

Good Deal or Bad Deal? Lloyds TSB to Acquire HBOS

Please read my comment on Lloyds TSB-HBOS deal at:

Lollapalooza Investing

AIG Bailout: Buffett's Advice

Please read my comments, Buffett's, Munger's and Grantham's advice at:

Lollapalooza Investing

Bill Ackman's Letter to Shareholders and Board of Directors of Longs Drug

Longs’ Valuation

In light of the disparate collection of assets that comprises Longs, we believe that the conventional valuation shorthand of precedent transaction multiples, discounted cash flow analyses and trading comparables fails to reflect a fair value for the Company. The four unique value drivers that distinguish Longs include (1) owned real estate, (2) leasehold real estate, (3) the PBM business and (4) readily available operating improvements to the Company’s core retail operation.

Owned Full Service Real Estate¹

Based on the Company’s disclosure in its 2008 10-K, we believe that the Company owns approximately 3 million square feet of real estate. After discussions with real estate investors with expertise and retail ownership in the California and Hawaii markets, we believe that a very conservative $30 per square foot market rent for these properties is appropriate. At a 7% capitalization rate, the value of these properties alone would be approximately $1.3 billion.

Ground Leases and Leased Full Service Real Estate

We understand that the Company’s leases typically have a 20-year initial term with three 10-year below-market renewal options, often with a favorable purchase option in the case of ground leases. Based on the Company’s public disclosures, we believe that the Company’s current rental expense is approximately $11.60 per square foot on the approximately 7.8 million square feet of full service leased real estate. Applying a $30 per square foot market rent yields a $18.40 per square foot rent spread.

Using a leasehold capitalization rate of 9%, the leaseholds are worth approximately $1.6 billion. While it is impossible to precisely estimate the portion of this value that would accrue to Longs in a monetization of these leaseholds without reviewing underlying leases, this is another overlooked source of substantial value in the business.

With owned real estate of $1.3 billion and leased full service real estate of $1.6 billion, the Company’s real estate assets alone are worth $2.9 billion, or approximately $71.50 per share. In effect, CVS is buying Longs’ real estate and is getting its PBM business and retail operations for free.

Ackman's Letter

Warren Buffett's happy housing story

The company's loan delinquency rates have been stable: On June 30, 2004, the rate was 3.26%; last year it was at 3.5%; and now it's 3.82%. (In comparison, the delinquency rate in the traditional housing market is around 6.4%.) Annual credit losses are running steady at a reasonable 1.5% of the loan portfolio. And Clayton's foreclosures have actually dropped from two years ago, from 5,823 to 4,588.

What's behind the portfolio's strength? Clayton is more careful about lending because it keeps all loans on its own books rather than offloading them to others by means of securitization.

Full Article

TRANSCRIPT & VIDEO: Warren Buffett Tells CNBC Treasury "Did Exactly the Right Thing" on Fannie/Freddie

Becky: There are some people who would say, 'Why not wash out the common shareholders, at least? Why put the taxpayers at risk?' What would you say to that?

Buffett: Well, the common shareholders are going to get nothing until the Treasury gets paid back, and even then, as I understand it, the Treasury is getting a warrant at a nominal sum for 79.9 percent of the resulting common, so assuming there is anything left for the common four or five years down the road, the Treasury will get 80 percent of it, so they're getting paid very well for stepping in. And like I say, the question of whether the common gets anything is problematical. The common is an option at this point.

Full Transcript

Ruane, Cunniff & Goldfarb Investor Day May 2008

Question:

I noticed that you trimmed your stake in Wal-Mart and increased it in Target. I was wondering if you might talk about Target, its position and why you like it so much.

David Poppe:

What I would say is we bought most of the Target before we sold any Wal-Mart. Sequoia still holds Wal-Mart.

Interestingly, I think if you look over the last seven years since 2001, Wal-Mart and Target have almost identical EPS growth rates. I think going forward, both are likely to have pretty good EPS growth rates. Right now, Wal-Mart might be a little bit better positioned in that its business is more oriented to food, commodities and staples.

Bob Goldfarb:

One difference between the two companies is that Wal-Mart has allocated a fair amount of its capital to opening stores abroad, whereas Target is strictly in the United States. I would say generally we have a preference for companies that do have foreign exposure, but in this case, Wal-Mart has failed to demonstrate to date that they can earn the kind of return on investment abroad that they've been able to earn in the United States.

As some of you may know, they've exited a couple of countries. Germany was a particularly expensive exit. They exited Korea. They've put a fair amount of money just recently into a struggling Japanese chain, and it's going to be a turnaround. Terence or David — how would you describe the return on investment, on ASDA, for example?

Terence Paré:

The return on ASDA has not been great. Part of the reason that Wal-Mart's returns overseas are less attractive in places like the UK than they are in the US is that they don't have the same kind of structural advantages there that they have here.

One of Wal-Mart's big edges is its ability to get goods from the supplier to the store very, very efficiently. It's harder to do that in countries like the UK. Is just not easy to get around. Wal-Mart's edge here, which is their superior logistics courtesy of our highway system, just doesn't exist in a lot of other areas. Their big differentiator is just not as important over there as it is here. I don't think they will ever be able to get the kind of returns overseas that they get in the US, but they'll do okay.

Full Transcript