Tuesday, April 29, 2008

Warren Buffett Finances Mars-Wrigley Deal: The Complete CNBC Interview

Becky Quick: Warren, thanks for joining us this morning. Appreciate it.

Warren Buffett: My pleasure.

Becky: People are always trying to figure out what you're doing with your cash. Why would you look at Wrigley right now? Why this deal right now?

Buffett: Well, I've been conducting a 70-year taste test, Becky, since I was about seven years old, on the products. I've done the same thing with Mars products. And they met the 70-year taste test (laughs.) But to tell you the truth, the Mars people asked me about participating in this, and we are financing. But we are a very, very junior partner, although we will have about 6-1/2 billion dollars in it. But we are a financing partner, in effect, for Mars in this acquisition.

Becky: Six-and-a-half billion dollars, though. That's still a substantial take. What do you look at beyond just the taste test? Do you think that this is the type of a bet that makes a good deal when you're looking at economic hardship times? Is this a recession-proof play?

Buffett: Yeah. Both companies have great brands. When I talk to classes of university students, for a dozen years or more I've used Wrigley as an example ... I haven't known about Mars except that they're a provate company. But there is really nothing that can go wrong with something like the Wrigley or the Mars brands. It's literally true that they have, ah, faced the test of time over decades and decades and people use more and more of their products every day.

Full Article

Monday, April 28, 2008

Mars buying gum maker Wrigley with financing from Buffett

Snickers and M&Ms candy maker Mars Inc. is buying Wm. Wrigley Jr. Co., which makes Juicy Fruit and Doublemint gum and Life Savers, for about $23 billion in cash.

The agreement announced Monday has the potential to transform the globe's confectionary industry and could spawn a series of other combinations.

.....Warren Buffett's Berkshire Hathaway Inc. will purchase $2.1 billion minority equity interest in the Wrigley subsidiary once the deal is completed. The Omaha, Neb.-based company also offered $4.4 billion of subordinated debt to fund the deal.

"A good time to buy a really great business is when you can do it," Warren Buffett said on CNBC Monday, adding that he understands Mars and Wrigley better than the balance sheets of most major banks.

Full Article

David Einhorn on WealthTrack

Bud Labitan: The "Four Filters" of Warren Buffett and Charlie Munger

How do we improve and optimize our investing decision making?

Friday, April 25, 2008

Richard Pzena: Doubling Down in Financials

When it comes to value investing or buying out-of-favor stocks, patience is a virtue. These days few are more virtuous than Richard Pzena, Chairman of Pzena Investment Management, a $20 billion assets money management company whose New York Stock Exchange listed shares are down more than 38% in the last 12 months.

Pzena, 49, is a contrarian value investor, and, in the third quarter of 2007, he decided that beaten-up banks would provide the best bang for his investors' buck. He bet big on stocks like Citigroup, thinking that the bottom was near and they were ripe for turnarounds. Needless to say, Pzena was early.

Sequoia Fund to Reopen to New Money

The Sequoia Fund, after experiencing selling by investors, is reopening its doors May 1 to new investors for the first time since 1982.

The $3.5 billion value fund is celebrated for outperforming the broader market during much of its 38-year history. For years, it was run by legendary stock picker William Ruane, who followed the same approach as Benjamin Graham and Warren Buffett.

Full Article

Wednesday, April 23, 2008

Investors fear a massive unwinding of debt will undermine the world’s economies. But the data indicates deleveraging doesn’t equal disaster.

A new fear has permeated conventional investment thinking: the massive leveraging-up of the recent past has gone too far and its unwinding will permanently hobble the global financial system. This view sees Bear Stearns as just one casualty in a gathering wave that has already claimed many U.S. subprime mortgage originators along with several non-U.S. financial institutions and will cause countless others to fail. And it sees the earnings power of those that survive as being permanently impaired.

The obvious question then is, which scenario is more logical: the extreme outlook described above, given the long period of easy credit extended to unqualified individuals? Or the scenario of a typical credit cycle that will work its way out as other post- excess crises have, and without impairing the long-term ROEs of the survivors? We believe the latter. Here’s why:

Full Pzena Commentary

Buffett, Seeking Acquisitions, to Travel to Europe

Billionaire investor Warren Buffett will visit Europe next month to scout potential acquisitions, said an executive at an Italian refiner who is organizing the tour.

``The purpose of the trip is to meet family-owned companies, owners of family companies, the typical European dynasties,'' said Angelo Moratti, vice president of Milan-based Saras SpA, in a telephone interview. ``His idea is that sooner or later one of these great businesses will fall into his hands.''

Scheduled for the third week of May, the tour will take the Berkshire Hathaway chairman to Milan, Madrid and as-yet undetermined cities in Germany and Switzerland, Moratti said. Buffett's assistant, Debbie Bosanek, confirmed the trip.

Buffett, 77, has been looking outside the U.S. to put his company's more than $40 billion in cash to work. Moratti said he is organizing the tour along with Eitan Wertheimer, president of Israel-based Iscar Metalworking Cos., acquired by Berkshire in 2006 in Buffett's first non-U.S. acquisition.

Full Article

Saturday, April 12, 2008

Great Speech by Shimon Peres

Excellent speech by Shimon Peres, President of the State of Israel, to young people.

Must watch!

Thank you to Ross Morgan for this link.

Sex and Financial Risk Linked in Brain

A new brain-scan study may help explain what's going on in the minds of financial titans when they take risky monetary gambles — sex. When young men were shown erotic pictures, they were more likely to make a larger financial gamble than if they were shown a picture of something scary, such a snake, or something neutral, such as a stapler, university researchers reported.

The arousing pictures lit up the same part of the brain that lights up when financial risks are taken.

"You have a need in an evolutionary sense for both money and women. They trigger the same brain area," said Camelia Kuhnen, a Northwestern University finance professor who conducted the study with a Stanford University psychologist.

Full Article

Monday, April 07, 2008

Michael Burry: Hedge fund manager saw subprime meltdown coming

The last time we wrote about Michael Burry, he was a Santa Teresa High School student preparing for the 1988 Academic Decathlon. The nervous kid who was trying to speed-memorize the names of the presidents has since become Dr. Michael Burry, with degrees from UCLA and Vanderbilt School of Medicine and a partly completed residency in neurology at Stanford Hospital.

During that residency, Burry expanded on an interest in investing that he's had since elementary school. When his father died in 1996, he was in his third year of medical school, and he took on the responsibility of helping to direct his family's finances. A year later, he began an investment blog that eventually drew national attention as Valuestocks.net.

In 2000, he left his neurology residency and started Scion Capital, a hedge fund now with more than $900 million under management. It's in Cupertino, far from the buzz of Wall Street.

Burry, 36, recently gained some fame making lots of money for his investors - returns were up 137 percent in 2007, he said - by betting against subprime mortgages. He told us what tipped him off that things were going to go badly for the subprime mortgage market, and he has some theories about why so few people saw it coming.

Sunday, April 06, 2008

Buffett tips off MU crowd

He might be the richest man in the world, but Warren Buffett is not above taking the time to share is knowledge and expertise with budding business professionals.

During a videoconference yesterday, University of Missouri business students had the chance to pick the brain of the billionaire investor and CEO of Berkshire Hathaway Inc. as a part of a daylong educational forum hosted by MU’s Trulaske College of Business.

"Develop your own talents," Buffett said via satellite from a television station in his hometown of Omaha, Neb. He added that oral and written communication skills are the most important tools a person can have coming out of college.

"If you have those abilities when you’re young, you jump out," the 77-year-old business giant said.

Full Article

Wednesday, April 02, 2008

Prof Sanjay Bakshi: Fooled by a Percentage Into Catching a Falling Knife!

One of my favorite experiments in class involves asking my students the following question:

“Suppose that you visit a furniture store in a mall to buy a lamp for your bedroom. You find a lamp you like and it has a list price of Rs. 5,000. Happy with this deal, when you approach the sales representative ready to buy the lamp you picked, she informs you that one of their stores which is just a ten-minute walk from there is closing down and you can buy the same lamp over there for Rs 1,000 less. Please raise your hand if the 20% discount is sufficient incentive for you to walk ten minutes to the other store to buy your lamp.”

About 70% of the students raise their hands.

My next question is then addressed to only those who raised their hands. I ask them:

“Suppose that you visit a car showroom to buy a car and after checking out many models, you find one you like. It costs Rs. 500,000, you are told by the sales representative. However, she also informs you that one of their showrooms which was just a ten-minute walk from there is closing down and you can buy the same car over there for Rs. 499,000 or Rs. 1,000 less. How many of you would like to walk ten minutes to go over to the other showroom to save Rs. 1,000?”

I hardly see a hand raised.

Somehow, students who were happy to walk ten minutes to save Rs 1,000 on a lamp are reluctant to walk ten minutes to save Rs. 1,000 on a car!

What is going on here?

Indeed, when I reframe both questions again, in a different form, students appeared puzzled:

“Would you walk ten minutes to increase your net worth by Rs. 1,000?”

Why would a man decline to save Rs 1,000 in one situation, and gladly accept it in another, with the same effort required in both situations?

Isn’t a penny saved a penny earned,?