Hermitage Capital: Bill Browder

Garry Kasparov Interview

Funny Cartoon: Quantitative Easing Explained

WealthTrack Interview: David Einhorn

Julian Robertson: QE2, Obesity Tax

R.A. Mashelkar: Breakthrough designs for ultra-low-cost products

Gold versus House

Download Gold vs House spreadsheet

Winner of China's Got Talent Final 2010 - Armless Pianist Liu Wei Performed You Are Beautiful

Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder

Warren Buffett says Berkshire Hathaway is the "dumbest" stock he ever bought.

He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to "chisel" Buffett out of an eighth of a point on a tender deal.

Buffett tells the story in response to a question from CNBC's Becky Quick for aSquawk Box series on the biggest self-admitted mistakes by some of the world's most successful investors.

Buffett tells Becky that his holding company (presumably with a different name) would be "worth twice as much as it is now" — another $200 billion — if he had bought a good insurance company instead of dumping so much money into the dying textile business.

Here's his story:

BUFFETT: The— the dumbest stock I ever bought— was— drum roll here— Berkshire Hathaway. And— that may require a bit of explanation. It was early in— 1962, and I was running a small partnership, about seven million. They call it a hedge fund now.

And here was this cheap stock, cheap by working capital standards or so. But it was a stock in a— in a textile company that had been going downhill for years. So it was a huge company originally, and they kept closing one mill after another. And every time they would close a mill, they would— take the proceeds and they would buy in their stock. And I figured they were gonna close, they only had a few mills left, but that they would close another one. I'd buy the stock. I'd tender it to them and make a small profit.

So I started buying the stock. And in 1964, we had quite a bit of stock. And I went back and visited the management, Mr. (Seabury) Stanton. And he looked at me and he said, ‘Mr. Buffett. We've just sold some mills. We got some excess money. We're gonna have a tender offer. And at what price will you tender your stock?’

And I said, ‘11.50.’ And he said, ‘Do you promise me that you'll tender it 11.50?’ And I said, ‘Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock to— at 11.50.’ I went back to Omaha. And a few weeks later, I opened the mail—

BECKY: Oh, you have this?

BUFFETT: And here it is: a tender offer from Berkshire Hathaway— that's from 1964. And if you look carefully, you'll see the price is—

BECKY: 11 and—

BUFFETT: —11 and three-eighths. He chiseled me for an eighth. And if that letter had come through with 11 and a half, I would have tendered my stock. But this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired Mr. Stanton. (LAUGHTER)

Now, that sounds like a great little morality table— tale at this point. But the truth is I had now committed a major amount of money to a terrible business. And Berkshire Hathaway became the base for everything pretty much that I've done since. So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway. I really should— should have bought it for a new entity.

Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren't any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave up. As instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now. So—

BECKY: Twice as much?

BUFFETT: Yeah. This is $200 billion. You can— you can figure that— comes about. Because the genius here thought he could run a textile business. (LAUGHTER)

BECKY: Why $200 billion?

BUFFETT: Well, because if you look at taking that same money that I put into the textile business and just putting it into the insurance business, and starting from there, we would have had a company that— because all of this money was a drag. I mean, we had to— a net worth of $20 million. And Berkshire Hathaway was earning nothing, year after year after year after year. And— so there you have it, the story of— a $200 billion— incidentally, if you come back in ten years, I may have one that's even worse. (LAUGHTER)

Source: CNBC

Melinda French Gates: What nonprofits can learn from Coca-Cola

Billionaires' Trip: BYD

Nassim Taleb: Soros versus Buffett

I came across an article on Bloomberg Businessweek, which said….

If given a choice between investing with Buffett and billionaire investor George Soros, Taleb also said he would probably pick the latter.

“I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”

[From: http://www.businessweek.com/news/2010-09-25/obama-s-stimulus-plan-made-crisis-worse-taleb-says.html]

I have high respect for your intelligence and thinking, and I believe that “Fooled by Randomness” and “The Black Swan” are must-read books for everyone. However, I believe your observation on Warren Buffett is wrong.

You justified your pick on Soros because you have observed his thousands if not millions of trades; therefore, giving you comfort that he is making decisions and his success, to quote what you said, is “2 million times more statistically evidence that his results are not by chance than Buffett does”.

You are implying that Soros is making thousands more decisions that Buffett. It seems to me that your understanding of Buffett is superficial, leading to your flawed conclusion.

During a meeting with MBA students from the University of Georgia in early 2007, Buffett told the group of students that "There were four Moody's manuals at the time. I went through them all, page by page, over 10,000 pages twice. On page 1433, I found Western Insurance Securities. Its earnings per share were as follows: 1949 - $21.66, 1950 - $29.09. In 1951, the low-high share price was $3 - $13. Ten pages later, on page 1443, I found National American Fire Insurance….”

Again, in 2004, Buffett searched through the entire Korean stock market by reading Citigroup Investment Guide to Korean Stocks (that is over 1,700 companies). In 4 hours he found 20 companies that he liked and put $100 million to work.

These two examples illustrated that Buffett did make thousands of decisions of not to invest. Those who study Buffett intensely know that he works extreme hard and study all companies available from A to Z, leaving no stone unturned. Deciding not to buy is just as important as deciding to buy. However, inactivity is commonly misunderstood for not making any decision.

To quote Albert Einstein, “Not everything that counts can be counted, and not everything that can be counted, counts.”

Kind regards,

David Lau

Jay-Z, Buffett and Forbes on Success and Giving Back

Atul Gawande Speech

Charlie Munger's Interview at the University of Michigan

Link

Joel Greenblatt on CNBC

Nick Vujicic: I Love Living Life. I Am Happy

Meredith Whitney Interview

Lessons from Meredith Whitney:

1. Keep it simple. Write and communicate in a way that even an art teacher or veterinarian could understand. When she famously made her Citi call, she looked at three key variables - leverage ratio, how much Citi needed to raise to reach similar leverage ratio as its peers, and dividend payout. She realized that in order for Citi to achieve similar ratio as its peers, it would need to raise $30billion in equity against $100billion in net assets. Therefore, Citi would need to stop paying dividend or else, go bust.
2. Work hard. She "taps dance to work". Don't mind asking dump questions.
3. Having high conviction after you have done your homework. It's ok to be the minority if you're right.
4. Be a prolific reader. Leave no stone unturned.

Enjoy the interview,

David

Yu Pengnian: Chinese philanthropist donates it all

Yu Pengnian’s journey from poor street hawker to Hong Kong real-estate magnate was already a remarkable one. Then the 88-year-old did something even rarer that shocked many in increasingly materialistic China: He gave it all away.

Saying he hoped to set an example for other wealthy Chinese, Mr. Yu called a press conference in April to announce he was donating his last 3.2 billion yuan (about $500-million) to a foundation he established five years earlier to aid his pet causes – student scholarships, reconstruction after the 2008 Sichuan earthquake, and paying for operations for those like him who suffer from cataracts.

“This will be my last donation,” he announced. “I have nothing more to give away.”

With that endowment, Mr. Yu became the first Chinese national to give more than $1-billion to charity, now having contributed almost $1.3-billion in cash and real estate to the Yu Pengnian Foundation.

In a stunned China, the question came quickly: Wouldn’t his children be angry that he had given their inheritance away? “They didn’t oppose this idea, at least not in public,” the eccentric Mr. Yu says, laughing, when asked the question again during an interview at his foundation’s office atop the 57-storey Penglin Hotel in the southern Chinese city of Shenzhen.

“If my children are competent, they don’t need my money,” Mr. Yu explained. “If they’re not, leaving them a lot of money is only doing them harm.”

To make sure that didn’t happen, he appointed HSBC as his foundation’s trustee and stipulated that none of its holdings could be inherited, sold or invested.

In a society where capitalism is just 30 years old, and charitable giving an even younger concept, Mr. Yu says one of his primary goals in making a show out of giving his money away was to set an example to other rich Chinese. “Everybody has a different view of money. Some do good things with it, some rich people do nothing with it. …My goal is to be a leader, a pioneer who encourages rich people, inside and outside of China, to do something charitable.”

Full Article

Michael Burry, Predictor of Mortgage Collapse, Bets on Farmland, Gold

Michael Burry, the former hedge-fund manager who predicted the housing market's plunge, said he is investing in farmable land, small technology companies and gold as he hunts original ideas and braces for a weaker dollar.

"I believe that agriculture land -- productive agricultural land with water on site -- will be very valuable in the future," Burry, 39, said in a Bloomberg Television interview scheduled for broadcast this morning in New York. "I've put a good amount of money into that."

Burry, as head of Scion Capital LLC, prodded Wall Street banks in early 2005 to create credit-default swaps to bet against bonds backed by the riskiest home loans. The strategy paid off as borrowers defaulted, letting his investors more than quintuple their money from 2000 to 2008, according to Michael Lewis's book "The Big Short" (Norton/Allen Lane).

Burry, who now manages his own money after shuttering the fund in 2008, said finding original investments is difficult because many trades are crowded and asset classes often move together.

"I'm interested in finding investments that aren't just simply going to float up and down with the market," he said. "The incredible correlation that we're experiencing -- we've been experiencing for a number of years -- is problematic."

Still, it's possible to find opportunities among small companies because large investors and government officials focus on bigger ones, he said. He is particularly interested in small technology firms.

"Smaller companies in Asia, I think, are neglected," he said. "There are some very cheap companies there."

Investing in Gold

Gold is also a favored investment as central banks issue debt and devalue their currencies, he said. Governments haven't adequately addressed the causes of the financial crisis and may be sowing the seeds for future problems by borrowing, he said. In the U.S., lawmakers showed they didn't understand how to prevent another crisis when they gave the Federal Reserve and Chairman Ben S. Bernanke additional authority, he said.

"The Federal Reserve, in my view, hadn't seen this coming and in some ways, possibly contributed to the crisis," he said. "Now, Bernanke is the most powerful Fed chairman in history. I'm not sure that's the right response. The result tends to tell me they're not getting it right."

The Dodd-Frank Act, signed by President Barack Obama on July 21, creates a consumer bureau at the Fed to monitor banks for credit-card and mortgage lending abuses. The bill also gives the Fed chairman a seat on a newly created Financial Stability Oversight Council, which is supposed to spot and respond to emerging systemic risks.

Background in Medicine

Originally, investing was a hobby for Burry, who as a resident neurosurgeon at Stanford Hospital in the 1990s typed his ideas onto message boards late at night.

He went to high school in San Jose, California, graduated from the University of California, Los Angeles and then earned a medical degree from the Vanderbilt University School of Medicine, according to "The Big Short." The book portrays him as a loner from a young age who excelled in areas that required intense concentration. While searching for undervalued companies, he discovered his own house was overpriced, prompting a broader investigation of the housing market.

It's possible Burry is part of "an extremely small group" of economists and investors who are "really exceptionally adroit" at forecasting, former fed Chairman Alan Greenspan said in April. Burry has been critical of the role Greenspan played in fueling the crisis with low interest rates.

Goldman Sachs

Burry said Wall Street investment banks such as Goldman Sachs Group Inc. shouldn't trade on their own account and don't always act in the best interests of clients. The firm is disbanding its principal-strategies business, one of the groups that make bets with the company's own money, two people with knowledge of the decision said last week.

"I don't believe that any Wall Street bank always acts in the best interests of its clients," said Burry, adding that he often fought with firms while betting against housing. "It's an incredibly vicious, incredibly competitive world when you're going to go take a position opposite one of those banks."

He asked seven Wall Street banks to help him bet against the housing market, and only Deutsche Bank AG and Goldman Sachs expressed any interest, Lewis wrote in his book. At the end of June 2008, original investors in Burry's hedge fund received a return on their money, after fees and expenses, of 489.34 percent, according to the book.

Link

David Sokol: Warren Buffett's Mr. Fix-It

The day after Lehman collapsed in September 2008, David Sokol noticed that the stock of Constellation Energy, a Baltimore utility, was plummeting. He called his boss, Warren Buffett, and said, "I see an opportunity here." Buffett, who had noticed the same thing, replied after a brief discussion: "Let's go after it."

Constellation held vast amounts of energy futures contracts that had gone sour, and the company appeared to be on the verge of bankruptcy. Sokol, as chairman of the Berkshire subsidiary MidAmerican Energy Holdings, knew the utility industry and saw a chance to buy solid assets at a bargain price. The deal, however, had to be done within 48 hours or the company would have to file for bankruptcy.

Sokol phoned the office of Constellation CEO Mayo Shattuck III, who was in an emergency board meeting. When his assistant answered, Sokol told her he'd like to speak to him. The secretary replied that if she interrupted the meeting, she might lose her job. Sokol replied, "If you don't interrupt the meeting, you might lose your job."

Sokol boarded a Falcon 50EX and sped to Baltimore. He met with Shattuck and struck a deal that evening to buy the company for $4.7 billion, staving off bankruptcy.

Within weeks, before the acquisition was completed, Constellation's board received a competing bid from Électricité de France for about a 30% premium. The board liked the offer, and so did Sokol -- who walked away with a $1.2 billion breakup fee for Berkshire.

When investors think of Berkshire Hathaway, they of course think of Warren Buffett and his record as a hands-off, if highly attentive, CEO. He gives free rein to the heads of his large collection of companies, ranging from Geico to Dairy Queen to Benjamin Moore to the Buffalo News to NetJets. Yet even in Buffett's empire, sometimes a CEO blows it, and his business needs to be fixed or a deal needs to get done -- fast. When that happens, Buffett's go-to guy is David Sokol.

Of all Berkshire's lieutenants, Sokol, 53, is mentioned most often as Buffett's heir, although Sokol shrugs off such speculation. Buffett likes Sokol just where he is, getting deals done, boosting profits, and turning around ailing businesses. In the foreword to Sokol's book, Pleased but Not Satisfied, Buffett writes, "He brings the business equivalent of Ted Williams' .406 batting average to the field of business management."

Buffett first met Sokol in 1999 when Berkshire was buying MidAmerican, the Iowa utility. With longtime Buffett friend Walter Scott, Sokol had bought a small, $28-million-a-year geothermal business in 1991 and built it into that utility powerhouse. MidAmerican, headquartered in Des Moines, now represents an $11.4 billion slice of Berkshire's revenue (about 10%), and Sokol is its chairman. In 2007, Buffett asked Sokol to get Johns Manville, an underperforming roofing and insulation company, on track, and he did; he is now its chairman. In 2008, Charlie Munger, Buffett's vice chairman, asked Sokol to fly to China to conduct due diligence on BYD, a battery and electric car maker. Sokol liked what he saw, and Berkshire invested $230 million for 10% of the company. That stake is now worth around $1.5 billion. In April, when Buffett had concerns about a provision in the Senate financial regulation bill that would have required Berkshire and other companies to post billions of collateral on their existing derivatives, it was Sokol he sent to argue his case. Buffett's side of the argument won.

Last summer Buffett handed Sokol perhaps the biggest assignment of his career: turning around NetJets. The fractional-ownership jet company last year lost $711 million before taxes -- not the kind of performance that warms Buffett's heart. Today the company is profitable, and Fortune got a rare, exclusive view of how Sokol did it.

Full Article

Li Lu: From Tiananmen Square to Possible Buffett Successor

From Tiananmen Square to Possible Buffett Successor

By SUSAN PULLIAM

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.

The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.

The development illustrates that Berkshire is moving toward putting in place—possibly sooner than investors anticipated—certain aspects of its succession plan.

The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire's BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li's hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor's 500 stock index during the same period.

Mr. Li's ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li "hardworking and clever."

Mr. Li's investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn't understand.

Mr. Buffett says Berkshire's top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire's $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.

In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn't rule out bringing in an investment manager such as Mr. Li while still at Berkshire's helm.

"I like the idea of bringing on other investment managers while I'm still here," Mr. Buffett says. He says he doesn't preclude making a move this year, though he adds that there is no "goal" to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be "paid as a group" from one pot, he says. "I don't want them to compete."

Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.

But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.

It's unclear whether he could rack up such profits if managing a large portfolio of Berkshire's.

What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down could backfire in a prolonged bear market. Despite a 200% return in 2009, he was down 13% at the end of June this year, nearly double the 6.6% drop in the S&P-500 during the period.

Mr. Li declines to discuss a potential Berkshire position, saying only that he feels fortunate to be a member of the Berkshire inner circle. "This is the stuff you can't conjure in dreams," he says.

Mr. Li was born in 1966, the year Mao Zedong's Cultural Revolution began. When he was nine months old, he says, his father, an engineer, was sent to a coal mine to be "re-educated." His mother was sent to a labor camp. Mr. Li's parents paid various families to take him in. He was shuttled from family to family for several years until moving in with an illiterate coal miner, with whom he developed a close bond, in his hometown of Tangshan. Living apart from his family as a child taught him survival skills, Mr. Li says.

He was reunited with his family, including two brothers, by age 10, when a massive earthquake hit his hometown, killing an estimated 242,000 people in the area, including the coal miner and his family. His nuclear family was spared, he says, but "most of the people I knew were killed."

At the time, he says he had no direction and was fighting in the streets. Mr. Li says his grandmother, who was among the first women in her city to attend college, inspired him to begin reading and studying. He later attended Nanjing University, majoring in physics.

In April 1989, he traveled to Tiananmen Square in Beijing to meet with students who were gathering to mourn the death of Secretary General Hu Yaobang, who was viewed as a supporter of democracy and reforms.

The students protested against corruption, among other things, and Mr. Li helped organize the students and participated in a hunger strike.

He and other students fled to France. Later in 1989, he traveled to the U.S. to speak at Columbia University, where human-rights activists embraced him as a hero. He spoke little English but landed an advance to write a book about his experiences.

Helped by financial scholarships at Columbia, Mr. Li quickly learned English. He simultaneously earned three degrees: an economics degree, a law degree and a graduate degree in business, according to Columbia.

With his student loans piling up, Mr. Li attended a lecture by Mr. Buffett at Columbia in 1993. At the time, the 1990s bull market was in full swing, and hedge funds were on the rise. Mr. Li says in China he didn't trust financial markets but hearing Mr. Buffett helped him overcome skepticism about stock investing.

He began dabbling in stocks using money from his book advance. By his graduation in 1996, he had built a sizable nest egg and says he thought he could retire. Instead he took a job at securities firm Donaldson Lufkin & Jenrette and then left to set up his own hedge fund. In 1997, he had set up Himalaya Partners, a hedge fund. Later he started a venture-capital fund to invest in U.S. technology companies.

It was a heady time on Wall Street. The Internet boom was beginning. Investors were clamoring to find hot stocks.

Through his human-rights contacts, Mr. Li quickly attracted well-heeled clients including Bob Bernstein, former chairman of Random House and founder of Human Rights Watch as well as the musician Sting. Other investors included financier Jerome Kohlberg, News Corp. director emeritus and Allen & Co. executive Stanley Shuman and hedge fund manager Jack Nash, Mr. Li says.

But Mr. Li bombed out in 1998, his first year as a hedge fund manager. His fund, which was invested chiefly in Asian stocks, was hammered by the Asian debt crisis, and lost 19%.

"I felt bad that people had trusted me," he says. "All they knew was I was a student activist and all they saw was losses."

His fortunes rebounded as the Asian crisis quickly faded. As 1998 began, so did a huge new bull market. By now, the hedge-fund industry was growing gangbusters, and by the end of 1999, Mr. Li's fund had regained its losses.

In 2002, hedge-fund giant Julian Robertson gave Mr. Li money to invest in his fund on the condition that the fund would make bearish as well as bullish bets on companies.

It wasn't a good fit. Mr. Li says he "hated" betting against stocks, complaining that he had to "trade all the time" to adjust his portfolio. (The remaining parts of the fund now are being unwound.) Mr. Robertson declined to comment on the business relationship.

One of Mr. Li's human-rights contacts was Jane Olson, the wife of Ronald Olson, a Berkshire director and early partner at a Los Angeles law firm Mr. Munger helped found. Mr. Li began spending time at the Olsons' weekend home in Santa Barbara, Calif., and on Thanksgiving 2003 met Mr. Munger, whose home is nearby.

Mr. Munger says Mr. Li made an immediate impression. The two shared a "suspicion of reported earnings of finance companies," Mr. Munger says. "We don't like the bull—."

Mr. Munger gave Mr. Li some of his family's nest egg to invest to open a "value" fund betting on beaten-down stocks.

Two weeks later, Mr. Li says he met again with Mr. Munger to make certain he had heard right. In early 2004, Mr. Li opened a fund, putting in $4 million of his own money and raising an additional $50 million from other investors. Mr. Munger's family put in $50 million, followed by another $38 million. Part of Mr. Li's agreement with Mr. Munger was that the fund would be closed to new investors.

Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.

Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)

When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.

In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.

BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.

The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.

Says Mr. Munger: "The big lithium battery is a game-changer."

BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.

Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.

Mr. Li is able to travel in China on a limited basis today, but he hopes to regain full travel privileges soon. It isn't clear how he is viewed by the Chinese government.

Mr. Li declined to name his fund's other holdings. Despite this year's losses, the $600 million fund is up 338% since its late 2004 launch, an annualized return of around 30%, compared to less than 1% for the S&P 500 index.

Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."

http://online.wsj.com/article/SB10001424052748703977004575393180048272028.html

Alice Schroeder: How Warren Buffett Really Makes His Investment Decisions

Mariusz Skonieczny: The Basics of Understanding Financial Statements

A friend of mine, Mariusz Skonieczny, recently wrote a book, The Basics of Understanding Financial Statements, which I think is a good introductory book to help beginners in understanding financial statements.

As Skonieczny put it, “Many people choose to invest their entire life savings into stocks, yet they do not take the time to learn basic accounting, which is the language of business.”

“Managers of various companies communicate with shareholders about the successes and failures of their business endeavors through financial statements which include the balance sheet, the income statement, and the cash flow statement. The preparation of financial statements is guided by various accounting guidelines. When buyers and sellers of stocks are truly involved in buying and selling businesses, it is critical that they know how to read and understand financial statements so that they know what it is that they are buying or selling.”

If you are interested in the book, please visit: Classic Value Investors website and become a subscriber of his blog. You will get the book for free!

Happy learning,

David

Forbes on Warren Buffett: A Great Compilation

Please download here.

Buffett's 1982 Letter Warning Dingell About Derivatives

Forbes has obtained a copy of Buffett's March 5, 1982, letter to Rep. John Dingell, D-Mich., laying out the risks of derivatives to the nation that were, of course, largely ignored. In the letter Buffett modestly refers to his background, referencing his previous 25 years spent as a financial analyst, and 30 years "in various aspects of the investment business." He adds, "I currently have the sole responsibility for an equity portfolio that totals over $600 million." It sounds prosaic now: $600 million!

Full Article

Viktor Frankl: Search for Meaning

Many thanks to Joe Koster for this wonderful link.

Geico Advertisement: Warren Buffett Rocks!!

Dan Pink: What Moves People to Work Better?

Munger on the Economy & Reform

Visit msnbc.com for breaking news, world news, and news about the economy

2010 Value Investing Congress Notes

Many thanks to Ben Claremon of Inoculated Investor for this excellent note.

2010 Value Investing Congress Notes

CNBC TRANSCRIPT & VIDEO: Warren Buffett on Goldman Sachs and U.S. Economic Rebound

Berkshire Hathaway & Wesco Financial 2010 Meeting Notes

Many thanks to Ben Claremon of Inoculated Investor for these excellent transcripts.


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Berkshire Hathaway 2010 Meeting Notes

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Sir Paul Nurse: Great Ideas of Biology

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Goldman Sachs' Charges Made Simple

James Pan (CP&E Partners LP): St. John's University

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Confessions of a Value Investor: A Few Lessons in Behavioral Finance - By Sanjay Bakshi

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Dr. Michael Burry: Inside The Collapse, Part 1 & 2

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Dr. Michael Burry: Betting on the Blind Side

In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry, immersed himself for the first time in the bond market. He learned all he could about how money got borrowed and lent in America. He didn’t talk to anyone about what became his new obsession; he just sat alone in his office, in San Jose, California, and read books and articles and financial filings. He wanted to know, especially, how subprime-mortgage bonds worked. A giant number of individual loans got piled up into a tower. The top floors got their money back first and so got the highest ratings from Moody’s and S&P, and the lowest interest rate. The low floors got their money back last, suffered the first losses, and got the lowest ratings from Moody’s and S&P. Because they were taking on more risk, the investors in the bottom floors received a higher rate of interest than investors in the top floors. Investors who bought mortgage bonds had to decide in which floor of the tower they wanted to invest, but Michael Burry wasn’t thinking about buying mortgage bonds. He was wondering how he might short, or bet against, subprime-mortgage bonds.

Every mortgage bond came with its own mind-numbingly tedious 130-page prospectus. If you read the fine print, you saw that each bond was its own little corporation. Burry spent the end of 2004 and early 2005 scanning hundreds and actually reading dozens of the prospectuses, certain he was the only one apart from the lawyers who drafted them to do so—even though you could get them all for $100 a year from 10kWizard.com.

The subprime-mortgage market had a special talent for obscuring what needed to be clarified. A bond backed entirely by subprime mortgages, for example, wasn’t called a subprime-mortgage bond. It was called an “A.B.S.,” or “asset-backed security.” If you asked Deutsche Bank exactly what assets secured an asset-backed security, you’d be handed lists of more acronyms—R.M.B.S., hels, helocs, Alt-A—along with categories of credit you did not know existed (“midprime”). R.M.B.S. stood for “residential-mortgage-backed security.” hel stood for “home-equity loan.” heloc stood for “home-equity line of credit.” Alt-A was just what they called crappy subprime-mortgage loans for which they hadn’t even bothered to acquire the proper documents—to, say, verify the borrower’s income. All of this could more clearly be called “subprime loans,” but the bond market wasn’t clear. “Midprime” was a kind of triumph of language over truth. Some crafty bond-market person had gazed upon the subprime-mortgage sprawl, as an ambitious real-estate developer might gaze upon Oakland, and found an opportunity to rebrand some of the turf. Inside Oakland there was a neighborhood, masquerading as an entirely separate town, called “Rockridge.” Simply by refusing to be called “Oakland,” “Rockridge” enjoyed higher property values. Inside the subprime-mortgage market there was now a similar neighborhood known as “midprime.”

But as early as 2004, if you looked at the numbers, you could clearly see the decline in lending standards. In Burry’s view, standards had not just fallen but hit bottom. The bottom even had a name: the interest-only negative-amortizing adjustable-rate subprime mortgage. You, the homebuyer, actually were given the option of paying nothing at all, and rolling whatever interest you owed the bank into a higher principal balance. It wasn’t hard to see what sort of person might like to have such a loan: one with no income. What Burry couldn’t understand was why a person who lent money would want to extend such a loan. “What you want to watch are the lenders, not the borrowers,” he said. “The borrowers will always be willing to take a great deal for themselves. It’s up to the lenders to show restraint, and when they lose it, watch out.” By 2003 he knew that the borrowers had already lost it. By early 2005 he saw that lenders had, too.

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