Man Without Qualities

Sunday, June 26, 2005


One of the odder features of many articles dealing with "legendary" investor Warren Buffett is that they come with charts showing the undeniably impressive rise of Berkshire-Hathaway stock since 1965 or so.

But many current investors weren't even alive in 1965, and most current investors surely weren't investing heavily then. Articles on the "legendary" Roman Trajan complete with maps showing how he expanded his empire would be about as relevant. Worse, unlike Trajan, Mr. Buffett is still active, so focusing investors on his antique performance days is seriously misleading. Suppose one compares Berkshire-Hathaway's performance with that of an even larger investment behemoth, like, say, Citigroup (market capitalization $249,354.09 million as of June 1, 2005), and since, say, 1990?

Somehow Mr. Buffett doesn't look so legendary in that comparison, does he?

In the mean time, there's Mr. Buffett's curious inattention to the fact that an investment horizon of five years is a very considerable portion of the remaining life expectancy of a man of his now very advanced age (although he makes folksy references to his age, essentially to distract from it), as well as his long term approach to the currency markets, as if they were like the American equities markets. But currency markets are not like the equities markets, and reports like this June 20 item should be troubling Buffett watchers everywhere:
Warren Buffett ... still believes the swelling U.S. trade deficit will cause the U.S. dollar to decline over the long term.

"There's no change in the underlying factors affecting currencies," Buffett said at a press conference in Boise, Idaho. "The policies that we're following are likely to lead to a weaker dollar over a long period of years. It's not a forecast for next week, or next month, or even next year." .... Berkshire said it lost $307 million in the first quarter from its stake in foreign currency contracts, following a $1.63 billion fourth-quarter gain. That stake rose to $21.8 billion as of March 31 from $21.4 billion at year end.

It now costs about 10 percent fewer dollars to buy euros and 6 percent fewer dollars to buy Japanese yen than on Dec. 31. Those percentages were 4.4 percent and 4.3 percent, respectively, as of March 31.
In other words, Berkshire-Hathaway is expecting to report a huge currency-trading quarterly loss (which has been noted here in the past) and Mr. Buffett is trying to groom the market by arguing that investors should not be paying attention to such short-term performance problems because his emphasis is on the long term decline of the dollar. Mr. Buffett has posed as a "value investor" for many years. Now he is up to his eyeballs in currency speculation trying to disguise it as long term investing. But currency speculation is not value investing, not even close. It's a field abandoned by the likes of the Quantum Fund on the grounds that it is just too risky and unstable. For example, a long term bet against the dollar in favor of the euro includes (among a whole lot more) confidence that the euro will survive in the long term. Perhaps it will, although more people have more doubts than a month ago. But does any sensible person think that Mr. Buffett has any particular insight into whether the political situation in Europe will allow the euro to continue to exist - or even allow the EU to continue to exist as we know it? More disturbingly, does Warren Buffett think he has any such insight? And, if he doesn't think that, what the heck is he doing betting "long term" against the dollar in favor of the euro? Can it really be that the man pretending to be Warren Buffett is really George Soros in disguise and on steroids?

The Soros/Buffett confusion is not the only example of Mr. Buffett's bilocating. On the one hand, he assured his investors that he, personally, was deeply involved in General Re's restructuring - including every major contract General Re wrote - and that he is a champion of good corporate management and controls! But when it came to light that General Re and much of its senior management had been heavily involved in facilitating insurance regulatory frauds and insurance company failures from Virginia to Australia, suddenly Mr. Buffett was "revealed" as only having been "generally informed" of the relevant fraudulent relationships, and unaware of their gross improprieties.

Sure, Mr. Buffett. And you can be in Omaha and Laguna Beach at the same time, too.

Berkshire-Hathaway and its stock price enjoy what one might call a "legendary performer" edge, an edge that I believe is completely unwarranted on the basis of recent company performance and the personal performance of its management - especially including Messrs. Buffett and Munger. The reasons for that "legend" to be debunked by hard facts are coming faster and more furiously every day. If anything, the price of the company's stock is much more precarious than the price of the dollar against the euro, in my opinion.

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