Jeff Bezos D6 Interview - Highlight Reel

Part 1
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Part 2
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He also appeared on CNBC afterward: HERE
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Related Previous Post: Put Buyers First? What a Concept
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The Amazon Kindle (price just reduced to $359 - as stated in the interview)

David Einhorn Speech - "Accounting Ingenuity"

Ira W. Sohn Investment Research Conference
David Einhorn, Greenlight Capital, “Accounting Ingenuity”
May 21, 2008

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I appeared at this conference six years ago and joked that my wife, while trying to help me prepare my presentation of the Allied Capital analysis, had a hard time staying awake. This is pretty ironic, since the ensuing fallout from that speech has cost us a substantial amount of sleep. Over the past six years I have learned a lot and grown a little, and formed some strong views about Wall Street regulation and the muzzle it often places on free speech.

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I think that research conferences like these are important. Of course, this one is particularly worthy because it supports a great cause: The Tomorrows Children’s Fund. Further, it is important for investors to discuss market information and analysis to help sort the good companies from the bad. But, there is a structural impediment in our financial markets that creates a massive disincentive to share research about companies doing bad things.

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I can fully understand why other investors might decline to appear in this forum or to share a critical analysis. Who could blame them? The cost is high (think lawyers here), it extracts an enormous personal toll, and there are better ways to raise money for a good charity. I have decided to persist because I believe it is important and the right thing to do.

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Book: Fooling Some of the People All of the Time: A Long Short Story

Berkshire Hathaway 2008 Annual Meeting Transcript

I helped work on an edited transcript from the Berkshire Meeting:

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Berkshire Hathaway 2008 Annual Meeting Transcript

Berkshire's No. 2 man helps from the background

Buffett's No. 2 man Charlie Munger plays his role at Berkshire mostly in private

The two men who run Berkshire Hathaway Inc. have an arrangement: Warren Buffett is the face of the company and Charlie Munger stays mainly in the shadows.

That works well for the two billionaires, who together have developed one of the most successful investment records ever.

But while Munger downplays his own contributions -- he is known for repeating "I have nothing to add" after Buffett's expansive comments at the Berkshire shareholder meetings -- his role is key to much of the company's success.

Buffett himself credits Munger with pushing him beyond his early investing strategies and says the two men have never had an argument -- even though they occasionally disagree.

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They organized Berkshire Hathaway so they wouldn't ever have much to do besides sit around and think. And that's still how they run the company today, even though it has grown to include roughly 250,000 employees and more than 70 subsidiaries.

"Neither Warren nor I is smart enough to make the decisions with no time to think," Munger said. "We make actual decisions very rapidly, but that's because we've spent so much time preparing ourselves by quietly sitting and reading and thinking."

The real key to Berkshire's success, Munger said, is that he and Buffett like learning and have improved over time. But Munger gives Buffett most of the credit.

"Mr. Buffett is by far the most important person," Munger said in an interview. "And to a huge degree why Berkshire Hathaway is the length and shadow of Warren Buffett."

Munger compares his role at Berkshire to that of Albert Einstein's professional colleagues.

"Practically everybody works better when not in extreme isolation," Munger said. "If Einstein had worked in total isolation, he would not have been as productive as he was. He didn't need a great deal of contact with other colleagues, but he needed some."

But Buffett credits Munger with pushing him beyond value investing.

"Charlie has taught me a lot about valuing businesses and about human nature," Buffett said.

Buffett's early successes were based on what he learned from former Columbia University professor Ben Graham. He would buy stock in companies that were selling for less than their assets were worth, and then, when the market price improved, sell the shares.

"Charlie says, 'You know, let's give this up, and really buy into some fine businesses,'" Buffett said.

Berkshire now prefers to buy and hold businesses for the long term, if not forever.

"Charlie got me started in the right direction on that, and he's had to nudge me back to that periodically," Buffett said while sitting next to Munger at a recent news conference.

Munger deflected Buffett's praise.

"Warren transformed my life way more than I transformed his," Munger said. "He talked me into giving up the law."
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Munger has always been modest about his role at Berkshire, and has been willing to avoid most of the limelight, said Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett."

"It's not easy to get two superegos to run something and one of them take the front seat totally and the other take the back seat," Kilpatrick said. "I think he's probably been a huge input all along and hasn't tried to claim it."

But Buffett and Munger found a way to run Berkshire without a clash of egos.

"It's a real privilege to be associated with a place like Berkshire," Munger said. "I think we have more fun doing what we do than practically anybody."

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Books:

The Snowball: Warren Buffett and the Business of Life

Poor Charlie’s Almanack

Ben Franklin on Humility (and some crafty advice on persuasion)

From his autobiography:


My list of virtues contain'd at first but twelve; but a Quaker friend having kindly informed me that I was generally thought proud; that my pride show'd itself frequently in conversation; that I was not content with being in the right when discussing any point, but was overbearing, and rather insolent, of which he convinc'd me by mentioning several instances; I determined endeavouring to cure myself, if I could, of this vice or folly among the rest, and I added Humility to my list, giving an extensive meaning to the word.

I cannot boast of much success in acquiring the reality of this virtue, but I had a good deal with regard to the appearance of it. I made it a rule to forbear all direct contradiction to the sentiments of others, and all positive assertion of my own. I even forbid myself, agreeably to the old laws of our Junto, the use of every word or expression in the language that imported a fix'd opinion, such as certainly, undoubtedly, etc., and I adopted, instead of them, I conceive, I apprehend, or I imagine a thing to be so or so; or it so appears to me at present. When another asserted something that I thought an error, I deny'd myself the pleasure of contradicting him abruptly, and of showing immediately some absurdity in his proposition; and in answering I began by observing that in certain cases or circumstances his opinion would be right, but in the present case there appear'd or seem'd to me some difference, etc. I soon found the advantage of this change in my manner; the conversations I engag'd in went on more pleasantly. The modest way in which I propos'd my opinions procur'd them a readier reception and less contradiction; I had less mortification when I was found to be in the wrong, and I more easily prevail'd with others to give up their mistakes and join with me when I happened to be in the right.

And this mode, which I at first put on with some violence to natural inclination, became at length so easy, and so habitual to me, that perhaps for these fifty years past no one has ever heard a dogmatical expression escape me. And to this habit (after my character of integrity) I think it principally owing that I had early so much weight with my fellow-citizens when I proposed new institutions, or alterations in the old, and so much influence in public councils when I became a member; for I was but a bad speaker, never eloquent, subject to much hesitation in my choice of words, hardly correct in language, and yet I generally carried my points.

In reality, there is, perhaps, no one of our natural passions so hard to subdue as pride. Disguise it, struggle with it, beat it down, stifle it, mortify it as much as one pleases, it is still alive, and will every now and then peep out and show itself; you will see it, perhaps, often in this history; for, even if I could conceive that I had completely overcome it, I should probably be proud of my humility.

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Related previous post: Ben Franklin's 13 Virtues

Book: The Autobiography of Benjamin Franklin (also available as an Audio Book)

More Funds Find Security in Cash

"There are only two hedges to protect you in any market environment: knowledge and cash," Mr. Berkowitz of Fairholme says. "It makes no sense to me to be fully invested."

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Strong conviction in your investments, infrequent trading and a highly concentrated portfolio are the keys. Mr. Rodriguez, for instance, has enjoyed a tailwind from large positions in energy-sector highfliers such as Ensco International and Patterson-UTI Energy. About 45% of assets were in the fund's top 10 holdings at the end of March; energy stocks alone accounted for 40% of the total portfolio.

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Fairholme is even more focused, with about 70% of assets in its 10 largest investments at the end of February, including an 18% position in Berkshire Hathaway, 15% in Canadian Natural Resources, 9% in Sears Holdings and 7% in Dish Network.

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"We don't market time, but we don't invest just for the sake of investing," Mr. Berkowitz says. "We invest when we can find a security that has a significant margin of safety and an expectation of a double-digit total return. If we can't find it, we don't do it."

Morningstar Interview with Bill Miller

Short (but good) interview with Bill Miller: HERE

First Eagle Funds Conference Call - May 6, 2008

Jean-Marie Eveillard:

Now, let me move to an update to the current investment scene as we see it. I think investing is a matter of trying to balance what I would call circumstances and prices. In terms of circumstances, we have been, for a while, in a financial crisis, probably the worst since the end of World War II, which is a polite way of saying that it’s the worst since the Great Depression. This financial crisis is, to a large extent, I believe, a result, a consequence of the previous 25-year credit boom that was briefly interrupted in 1990. That credit boom, because it went on so long, in the last few years of the boom, the acrobatics by financial types, not us mind you, were extraordinary. Then the credit cycle turned in August of last year, with the sub prime housing crisis, and it has been painful ever since.

Now, I’m sure, of course, that the crisis will find its resolution; all crises do eventually. The key question, I believe, is, “How long and how painful the transition will be towards the resolution of the crisis.”

We are just beginning to see the economic consequences of the crisis. In other words, the economic slow down. We also have to worry, I believe, about the unintended consequences of the very unusual steps taken by the Federal Reserve to prevent the crisis from degenerating. Among those unintended consequences, of course, is the status of the dollar as the world’s reserve currency and the possibility that domestic inflation will accelerate.

Now it’s true that we’ve had, depending upon how one counts, six or seven financial crises over the past 20 years. And it seems to me that most investors take the attitude that in the past six or seven crises, it was all right to start buying equities in the middle of the crisis because those six or seven crises were handled by Mr. Greenspan, the former Chairman of the Federal Reserve. In each instance, he flooded the system with liquidity and after a few uncomfortable months, the crisis was over.

I would not bet the farm on a repeat of that scenario. It may happen that the crisis is over quickly, but again, I wouldn’t bet on it.

If I move to prices, the American equity market is off about 10 or 12% from its high last October. The high came at the end of a five-year bull market between 2002 and 2007.

In Europe, equity prices are also off 10 to 15% from their highs of last year. In Japan, the market is off much more than that. Not to mention China, where up until recently, the market was off about 50% from its high. But then China, and to a lesser extent, India, had been involved in major bubbles.

So what I’m saying about global prices is, hey, stock markets are off from their highs, but at least in the U.S. and in Europe, the decline is, so far, quite moderate. Nevertheless, as equity markets come down, as they did since last October, a few opportunities, to our mind, appeared here and there. We’ve been net buyers since the beginning of 2008, but I must say we may not be looking in the right places for all I know, but we have not come up with a great many opportunities yet.

There is nothing wrong with waiting. As Warren Buffett has said, “One has got to wait for the fat pitch.”

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Book (mentioned by Eveillard): The Investor's Dilemma: How Mutual Funds Are Betraying Your Trust And What To Do About It By Louis Lowenstein

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Lowenstein Paper: Journey Into the Whirlwind: Graham-and-Doddsville Revisited

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Five value-oriented mutual fund managers that might be worth looking into:

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First Eagle Funds

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FPA Funds

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Longleaf Partners Funds

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Fairholme Funds

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Wintergreen Fund

The best fund manager of our time

Robert Rodriguez has accomplished the unheard-of-feat: driving staggering returns in both a stock and a bond fund for more than two decades.
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Fresh out of college in 1971, Rodriguez jumped into the hot growth stocks of the day. "I thought if you couldn't compound money at 20% to 25% a year, you were basically incompetent," he recalls.
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Then came the bear market of 1973-74. His favorite stock, a recreational-vehicle company called Executive Industries, started dropping from his initial purchase price of $22 a share. He bought more all the way down to $8, when he ran out of money. (His average cost per share was in the low teens.) The stock hit bottom at 88¢. The memory still haunts Rodriguez, who explains with a bitter laugh: "When somebody says to me today, 'This stock can't go any lower,' I say, 'Au contraire!' "
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The lesson didn't stop there. "I learned that if you make a mistake and you don't tear it apart to see what you did wrong, you're going to repeat it in the future. I learned that fear is a terrible thing to have." He adds, "The best way to minimize your fear is to have a solid understanding of the companies you invest in."
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Searching for answers in the library at the University of Southern California, where he was studying for his M.B.A., Rodriguez discovered Benjamin Graham and David Dodd's Security Analysis. Graham and Dodd helped him realize that chasing hot stocks was no way to pile up cold cash; instead, Rodriguez began to look past the fluctuating prices of stocks to determine the enduring value of the underlying businesses.

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He realized that Executive Industries, trading at less than $1 a share, had $2 a share in cash and $3.50 a share in real estate - plus an ongoing business that should bounce back once the recession ended. Instead of selling, he held on for dear life and eventually got out for around $22 a share, turning a nice profit on a stock that Wall Street had left for dead.
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"I realized then," he recalls, "that if I can survive the downturn I can live to participate in the upturn." According to Rodriguez, a true contrarian has to feel comfortable being lonely. And that, he says, means you can shrug off three unpleasant questions. The first is "Don't you know that...?" The next is "You're buying what?" And the third is "Are you nuts?"

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Related Previous Posts:

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Crossing the Rubicon - Bob Rodriguez, FPA

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Credit Crisis - Robert Rodriguez, FPA Funds

Wesco 2008 Annual Meeting Notes

A big thanks to Peter Boodell.

The only duty of corporate executive is to widen the moat. We must make it wider. Every day is to widen the moat. We gave you a competitive advantage, and you must leave us the moat. There are times when it is too tough. But duty should be to widen the moat. I can see instance after instance where that isn’t what people do in business. One must keep their eye on ball of widening the moat, to be a steward of the competitive advantage that came to you. A General in England said, ‘Get you the sons your fathers got, and God will save the Queen.’ At Hewlett Packard, your responsibility is to train and deliver a subordinate who can succeed you. It is not all that complicated – all that mumbo jumbo. We make bricks in Texas which use the same process as in Mesopotamia. You need just a few bits of ethos, and particularly engineering ethos. Think through the system, and get a margin of safety.


Q13: Scott from LA. With portfolio of $2m, vs. that of Berkshire, how would your mandate be different? Small vs mid, us vs intl, etc?

If I was managing smaller money I’d be looking in smaller places, I’d look for mispricing. But I don’t want to change places with you. [laughter]


Q21: Matt from NYC. How does Berkshire thru its subsidiaries manage an annual budgeting process?

We don’t have one. Obsessing over budgets creates bad incentives. Just eliminate unnecessary costs. Budget committees tend to do just the opposite.


Q24: Ashok from LA. Checklist?

I don’t have a simple checklist. You have to work at it a long long time. I still do dumb things after years of hard work. The more big ideas you have the easier. We exclude a whole lot of things because they are in the too tough pile. If you exclude, you do better. Then you must have field where rationality will be rewarded. Some of political ideas – it is very hard to know how they will work out over next few centuries. We are not trying to involve ourselves. We look for things that can be done. But I have no little short list. People who sell strong abs on TV at night might have one. I have no rule for a strong brain.


Q29: I’m curious, you are student of history. Does today remind you of any time in past, and why?

I punched premium channel in hotel in Tokyo, and out came exercise in pornography. I would argue Soddom and Gomorah is still around. I think Athens of Pericles is still around today. Our bullies are similar to past eras.


Q40: CA. Average investor should invest in index funds.

All intelligent investing is value investing. Calling something a value fund doesn’t absolve it. You can call yourself a ballet dancer if you dance like me, but it is not a good thing. I wouldn’t recommend people broadly invest with any value fund. I would avoid funds that have 100% turnover per year. It is a ridiculous way for an ordinary index fund to behave. It is imperfect, but best outcome for most know-nothings, in order to avoid being misled by fools and liars.


Q45: What has changed since you first started investing?

I owe a great deal to Mr Buffett. It took a while to convince me. Warren and I together got very good at reinsurance transactions and portfolio transfers. We’ve learned together at it. Berkshire would have been a mess if it had ever stopped learning. Only reason we’ve been able to keep a shred of decency in our record is that we have been hell bent to keep learning.

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Book: Poor Charlie’s Almanack