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Archive for the ‘Greenbackd’ Category

Update 2: I think the Corner of Berkshire or the Reddit Security Analysis threads are money. I’m leaning towards Reddit because it’s free, but shout me down. I’m going to stick the link into the menu at the top of the page and then loiter there.

Update: I’d also like to hear your thoughts on the best forums (on any subject) from which I can shamelessly steal.

Folks, I’d like to hear your opinions on the best value investing forums on the web. The bigger the community, the more frequent the posting, and the freer the better. If none exist, then I plan to set one up.

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This is an oldie, but a goodie (via CNN). The travails of buying net nets, as told by the master’s apprentice:

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 a Squawk 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)

Hat tip SD and David Lau.

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It’s always fascinating for me to see which posts draw the most attention. Here are the top 10 posts for the last quarter:

  1. Graham’s P/E10 ratio
  2. The long and short of The St. Joe Company
  3. Absolute Return interviews Seth Klarman
  4. Seahawk Drilling (NASDAQ:HAWK) redux and HAWK liquidation values
  5. Whitney Tilson and Glenn Tongue on BP Plc
  6. ROIC and reversion to the mean: Part 1
  7. The long and short of Berkshire Hathaway
  8. Grantham on the potential disadvantages Graham-and-Dodd investing
  9. Seth Klarman sees another lost decade for stocks
  10. Lost Graham speech rediscovered

See you Monday.

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Greenbackd has had some great investment ideas contributed in the past by readers, and so I’m extending another open invitation to anyone who wishes to submit a post for publication. The only requirement is that it be within the remit of Greenbackd, which is say that it is an undervalued asset situation with a catalyst.

Email your idea to greenbackd [at] gmail [dot] com.

Fame and fortune await.

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I’m taking two weeks off.

I’ll be in Pasadena, CA at the Value Investing Congress on May 4 and 5, and the Wesco Financial Corp. (AMEX:WSC) 2010 annual meeting on May 5. If you’d like to catch up, please drop me an email to greenbackd [at] gmail.

I’ll be back Monday, May 17, 2010.

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Here are the top 10 posts for the last quarter by unique visitors:

  1. The palaeontology of Mike Burry
  2. Guest post: The short case for Berkshire
  3. Intuition and the quantitative value investor
  4. Japanese liquidation value: 1932 US redux
  5. What Montier’s Painting by Numbers can offer to value investors
  6. Seth Klarman’s Twenty Investment Lessons of 2008
  7. Quantifying qualitative factors
  8. Hunting endangered species
  9. Mean reversion in earnings
  10. The Kabuki narrative

Happy Easter. See you back here Tuesday.

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Update: Happy April Fool’s Day. The hunt for http://www.valuestocks.net goes on.

I’ve been on the Mike Burry story like a bloodhound on a rawhide bone. One part of the puzzle that has continued to elude collectors of Burry memorabilia is an archive of Burry’s http://www.valuestocks.net site. Until now.

I am pleased to announce that Greenbackd has exclusive access to Burry’s www.valuestocks.net archive. Click here to see it all its wonder. You’re welcome. You wouldn’t get this from any other guy.

It’s amazing what one can achieve with only archive.org’s Wayback Machine, a team of archaeological finance hackers from The Heilbrunn Center for Graham & Dodd Investing and a “Never-Gonna-Give-You-Up” attitude.

For those who are interested in a technical discussion of the hack, click here.

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