Thursday, August 15, 2013

Older New York Times Articles

Here are some more older NY Times articles I found interesting (with excerpts below the article titles):


Is Warren Buffett, the master investor, worth two times book value? That seems to be the issue in valuing the conglomerate he oversees, Berkshire Hathaway Inc. The thinly traded shares were quoted last week at about $3,500, versus a book value around $2,600. But one investment adviser contends they should be worth $5,200.

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But elsewhere in his investment strategy, Buffett had begun to analyze companies in a highly un-Graham-like fashion. Instead of relying simply on book value, he studied a company's management and performance. Rather than simply pursuing bargains per se - a mediocre company at a very cheap price, for example - ''I became very interested in buying a wonderful business at a moderate price.''

Buffett's first great coup in that regard was the American Express Company. In 1963, devastated by a scandal involving a large quantity of nonexistent salad oil, the company saw its stock price plummet from around $60 to $34. It was hardly a Ben Graham investment situation: facing a $60 million loss, American Express effectively had no net worth. There was no Margin of Safety.

''But as far as I was concerned,'' Buffett says, ''that $60 million was a dividend they'd mailed to the stockholders, and it got lost in the mail. I mean, if they'd declared a $60 million dividend, everybody wouldn't have thought the world was going to hell.''

A careful scrutiny of the company revealed that American Express virtually owned the nation's traveler's check business and possessed by far the strongest credit card, assets that were entirely unaffected by the scandal. Together, the check and card businesses constituted an unassailable franchise - what Buffett calls ''a castle with a moat around it,'' his new Margin of Safety. A franchise, as Buffett defines it, consists of a product or service that people will seek out and ask for by name, even if it is priced above the competition. ''It ain't a wonderful business if it doesn't have a franchise,'' he says.

As a rule, Buffett had never committed more than a quarter of the partnership's capital to a single investment, but he broke that rule now, pouring $13 million - 40 percent of the capital - into American Express. He sold out two years later for a $20 million profit.

Buffett found many an opportunity in the mid-1960's. ''I went from flower to flower in those days,'' he recalls. But as the decade waned, and the stock market boomed, the opportunities grew fewer.

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Mr. Buffett's parents were observant Presbyterians and he, too, sang in the choir. Early on, though, he became an agnostic. He avoids houses of worship. His concerns are entirely secular. ''The nice thing about an agnostic is you don't think anybody is wrong,'' Mr. Buffett said.

What attracted Mr. Buffett to the rabbi? ''He's a sincere guy,'' Mr. Buffett said. ''He can be quite funny. He's quite likable.''

Rabbi Kripke said of Mr. Buffett: ''We both lived in similar ways. We both felt that the business of life is to be decent to one another and to live with compassion and not indifference.''

Mrs. Buffett invited the Kripkes to Thanksgiving dinner at their house. The Kripkes adhered to Jewish dietary rules, and so told her that they would be glad to accept but that the Buffetts had to understand that they would have to pass on the turkey, which would not be kosher, and feast on rolls and coffee and nothing else. That troubled Mrs. Buffett, so she enlisted a gourmet cook to make a decidedly gourmet tuna salad for the Kripkes. It became a tradition: turkey for the Buffetts and their other guests, gourmet tuna salad for the Kripkes.

Mr. Buffett was moderately wealthy at the time, and was operating limited partnerships with select investors. His acumen was known in Omaha but little outside the city.

The Kripkes had inherited some money from their parents and had saved a little of their own -- a total of about $65,000 -- but what did they know of stocks and debentures, puts and calls, the arcana of portfolio theory? His wife told him, ''Myer, invest the money with your friend Warren.''

The rabbi did not want to be embarrassed. In those days, Mr. Buffett was accepting investments in chunks of $150,000 to $200,000. ''He doesn't want the kind of money we have,'' Rabbi Kripke said.

For three years, Mrs. Kripke repeated the message until it became a chant. They were all friends, she said; he will take the money.

Finally, Rabbi Kripke went to Mr. Buffett, and Mr. Buffett took the money.

''I wasn't admitting many people in the 1960's,'' Mr. Buffett said. ''But I liked Myer.'' It made little difference that for Mr. Buffett's league, Rabbi Kripke's investment was on the meager side. ''I wanted people who, if it went bad, we could still be friends,'' he said.

The rabbi did not ask Mr. Buffett what he invested the money in, and it was just as well. Mr. Buffett would not have told him. That was the way he did business.

And over the years, as his stake swelled, Rabbi Kripke was never the hectoring client. ''He never asked me, 'Why didn't we do better last year?' or, 'How are we going to do this year?' '' Mr. Buffett said.

Rabbi Kripke retired in 1975. Since then, he has been teaching at Creighton University, the Jesuit school in Omaha, and he writes a weekly column for the local Jewish newspaper.

Across 30 years, except for a few withdrawals to make charitable contributions, the Kripkes kept their savings with Mr. Buffett. Early on, the limited partnership they had set up was terminated and the rabbi's stake was converted into shares of Berkshire Hathaway, the investment company run by Mr. Buffet, which has risen in value in unheard-of fashion.

The world came to know Mr. Buffett as arguably the most storied investor of all time. The rabbi did all right, too. By last year, his shares were worth $25 million, an unimaginable sum in a field in which enrichment is customarily measured in nourishment of the spirit.

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WARREN E. BUFFETT is not particularly enamored of the stocks that Berkshire Hathaway now owns, even though they have declined substantially in price. But he has found a stock he thinks is cheap -- one that Berkshire may begin buying soon: Berkshire Hathaway's own shares.

Last year was a dreadful one for Berkshire. Its major 1998 acquisition, General Re, had poor results and many of the stocks in the portfolio that brought fame and wealth to Mr. Buffett, the Berkshire chairman and chief executive, lost value even while the overall market was rising. Over all, Berkshire reported profits of $1.56 billion, or $1,025 a share, in 1999, down from $2.83 billion, or $2,262 a share a year earlier.

As a result, Berkshire's Class A stock fell during the year for the first time since 1990, and it has continued to fall this year, closing Friday at $41,300, less than half the $84,000 peak it reached in June 1998.

In a letter to shareholders in Berkshire's annual report, released over the weekend, Mr. Buffett again warned that stock prices are generally very high, reflecting investors' ''wildly optimistic'' expectations. As for the companies in which Berkshire has large positions, ''the prices of the fine businesses we already own are just not that attractive,'' he wrote. ''That's why we haven't added to our present holdings.''

Berkshire has never bought back any of its own shares, and Mr. Buffett said that he thinks that share repurchases are often done by companies interested in pumping up the price of their shares even though they are already overvalued and buying back shares will, in the long run, hurt those shareholders who stay.

But Mr. Buffett said that when the share price fell below $45,000 in February, he considered making purchases, but decided against doing so until shareholders could be told of the possibility. The February plunge came on rumors regarding Mr. Buffett's health. The price soon recovered when those rumors were denied, but in recent days it has begun falling again.

By setting a price below which he deems the shares attractive, Mr. Buffett may have provided some support for the stock even if the company does not make purchases. ''I view it as an I.Q. test for investors,'' said Alice Shroeder, an analyst for PaineWebber. ''If Warren Buffett is a buyer, would you be a buyer or a seller?''

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Mr. Jobs, some say, is like the charismatic leader of a cult, or at least of a fraternity - a master at motivating people. ''He believes what he is saying, and he believes it so fervently that you want to believe it,'' said Mr. Murray, the former Macintosh marketing manager.

He can also be intimidating, temperamental and demanding. ''He's very impatient with people he views as stupid,'' said one associate. ''And there's no gray area with Steve. You're either bright or you're not.''

At Apple, for example, Mr. Jobs viewed the Macintosh group as special, according to accounts of former employees, and he and his team began openly calling everyone else in the company ''bozos.''

AT Next, Mr. Jobs is known for dropping in on meetings and quickly dominating, no matter what the subject. If he hears something he doesn't like, he berates the offending employee, calling the idea or product ''brain-damaged.'' People learn to stand their ground, however, because of what employees dub the ''three times'' theory: The second time Mr. Jobs considers the idea, the theory goes, he will like it better; the third time he will call it ''insanely great.''

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With a market capitalization of $12.8 billion, Microsoft is also one of the 50 most valuable companies in the nation, according to a Business Week ranking, ahead of all computer companies except I.B.M. and Hewlett-Packard and in the company of Ford Motor, Dow Chemical and other industrial giants with many times its revenues. The nerdy programmer, William H. Gates, now 35, owns enough of Microsoft to make him worth $4 billion, more than the gross national product of Nicaragua.

But it is getting lonely at the top. On the way to its current dominance, Microsoft and the intensely competitive Mr. Gates have angered many rivals and even some former partners, including I.B.M. Now, almost everyone in the industry is hatching plans to try to compete with Microsoft for control over the industry's direction. And the resulting massive realignment of forces that is reshaping the industry could pose a severe challenge to Microsoft's hegemony.

"Our belief is that Microsoft has peaked," said George Colony, president of Forrester Research, a market research firm in Cambridge, Mass. "They have enough hubris now to believe they don't need I.B.M., that they don't need anybody. I think Microsoft will be a big, struggling company in two years."

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Steve Jobs, taking forceful action to revitalize Apple Computer Inc., surprised the technology industry Wednesday by forging an alliance with Microsoft Corp. and shaking up the board of directors of the company he co-founded in his garage two decades ago.

Before a throng of the company's fans at the MacWorld Expo in Boston, Mr. Jobs announced that Microsoft would invest $150 million over three years in nonvoting Apple stock and, more significantly, would continue to develop business programs for the Macintosh platform for at least the next five years.

Apple also revealed a board of directors comprising some of the top names in the computer industry, including Mr. Jobs and Lawrence Ellison, the chairman of Oracle Corp. Mr. Jobs recently rejoined the company as an adviser, but he took on an expanded role after the ouster of Gilbert Amelio as chairman last month.

The reaction on Wall Street was sharp and favorable. In heavy afternoon trading, Apple's shares were up $6.75, to $26.50. They closed as low as $13.0625 last month.

Some analysts saw the announcements as a sign that the charismatic Mr. Jobs had reclaimed control of the company. But other observers at the Boston conference noted that despite his inspirational presence, Mr. Jobs was still an adviser to Apple and not the chief executive officer.

Apple said it was recruiting a new chief executive, who would be asked to join the board, and that a chairman would not be named until a CEO was found. The computer maker has traditionally split those positions.

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Apple's digital hub strategy is based on software. And the new software-enabled uses of the computer are a much more subtle sale than a stylish new hardware design. That is why Apple has begun opening its own stores -- two in May, with 25 across the country planned by the end of the year. A flashy new computer, like Apple's pearl-white iBook notebook, introduced in May, needs only a magazine ad to show its striking appearance. But software requires a demonstration -- people have to see the new uses. ''The stores are crucial, because it is software that has to be sold,'' noted Charles Wolf, an analyst at Needham & Company.

Yet Apple is opening its stores just as Gateway -- the other personal computer company that opened its own stores -- is closing many down.

The Apple strategy also depends on consumers buying related gear, like digital cameras and digital video cameras, which remains fairly expensive.

But Mr. Jobs is not squeamish about such risks. When discussing the Macintosh G4 Cube, a beautiful machine that sold poorly after it was introduced last year, he enumerates the lessons learned -- mainly, that the closed-box design sacrificed expansibility, which professional users want and need. Yes, he acknowledges, it was a failure.

''And we'll have more,'' Mr. Jobs said. ''If we don't miss once in a while, we aren't trying hard enough.''

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Apple Computer introduced a portable music player today and declared that the new gadget, called the iPod, was so much easier to use that it would broaden a nascent market in the way the Macintosh once helped make the personal computer accessible to a more general audience.

But while industry analysts said the device appeared to be as consumer friendly as the company said it was, they also pointed to its relatively limited potential audience, around seven million owners of the latest Macintosh computers. Apple said it had not yet decided whether to introduce a version of the music player for computers with the Windows operating system, which is used by more than 90 percent of personal computer users.

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Microsoft , continuing its effort to extend its reach beyond computers, today introduced designs for a new class of watch that gives more than the time and a pocket audio and video player.

The designs, which will be available from several manufacturers by the end of the year, were presented by Microsoft's chairman, Bill Gates, in a speech today that opened the annual International Consumer Electronics Show here.

But even as the company extends its reach to new devices, Microsoft's vision is closely linked to the computer. Both the watch — which can provide weather information, text messages and other data — and the media player are designed to be controlled through wireless connections to their owners' PC's.

In an interview today, Mr. Gates said he saw a world in which the personal computer was increasingly linked wirelessly to all manner of displays.

"You will have devices in the home of different screen sizes: wall-sized for a lot of people to watch, desk-sized for doing homework or taxes, and pocket-sized for information you have with you at all times, and watch-sized," he said. "We will make all those work together."

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Two years ago this month, Apple Computer released a small, sleek-looking device it called the iPod. A digital music player, it weighed just 6.5 ounces and held about 1,000 songs. There were small MP3 players around at the time, and there were players that could hold a lot of music. But if the crucial equation is ''largest number of songs'' divided by ''smallest physical space,'' the iPod seemed untouchable. And yet the initial reaction was mixed: the thing cost $400, so much more than existing digital players that it prompted one online skeptic to suggest that the name might be an acronym for ''Idiots Price Our Devices.'' This line of complaint called to mind the Newton, Apple's pen-based personal organizer that was ahead of its time but carried a bloated price tag to its doom.

Since then, however, about 1.4 million iPods have been sold. (It has been updated twice and now comes in three versions, all of which improved on the original's songs-per-space ratio, and are priced at $300, $400 and $500, the most expensive holding 10,000 songs.) For the months of July and August, the iPod claimed the No. 1 spot in the MP3 player market both in terms of unit share (31 percent) and revenue share (56 percent), by Apple's reckoning. It is now Apple's highest-volume product. ''It's something that's as big a brand to Apple as the Mac,'' is how Philip Schiller, Apple's senior vice president of worldwide product marketing, puts it. ''And that's a pretty big deal.''

Of course, as anyone who knows the basic outline of Apple's history is aware, there is no guarantee that today's innovation leader will not be copycatted and undersold into tomorrow's niche player. Apple's recent and highly publicized move to make the iPod and its related software, iTunes, available to users of Windows-based computers is widely seen as a sign that the company is trying to avoid that fate this time around. But it may happen anyway. The history of innovation is the history of innovation being imitated, iterated and often overtaken.

Whether the iPod achieves truly mass scale -- like, say, the cassette-tape Walkman, which sold an astonishing 186 million units in its first 20 years of existence -- it certainly qualifies as a hit and as a genuine breakthrough. It has popped up on ''Saturday Night Live,'' in a 50 Cent video, on Oprah Winfrey's list of her ''favorite things,'' and in recurring ''what's on your iPod'' gimmicks in several magazines. It is, in short, an icon. A handful of familiar clich├ęs have made the rounds to explain this -- it's about ease of use, it's about Apple's great sense of design. But what does that really mean? ''Most people make the mistake of thinking design is what it looks like,'' says Steve Jobs, Apple's C.E.O. ''People think it's this veneer -- that the designers are handed this box and told, 'Make it look good!' That's not what we think design is. It's not just what it looks like and feels like. Design is how it works.''