Trouble in Warrentown

Will Sokol-Gate destroy Warren Buffet’s legend?

May, 2007; a crowd of thousands gather in a massive auditorium in Omaha. All smiling, all happy; some even brought their kids along for the Kool-Aid. But the familial atmosphere and pedestrian khakis betray their credentials; some are bankers, some are fund managers, strategists, analysts, and none of them are there for the lovefest.

What could bring them away from their beloved financial hubs?

Well only one man can draw such a crowd.

Only one man could inspire such awe and love back then.

This was Berkshire Hathaways’s annual meeting, and that one man is the greatest investor in the world. That man is Warren Buffett.

Well… that was then, not so much of that happening now. Hah.

Over the past few years, Buffett bashing has become quite en vogue in the investment community. I used to be one of those bashers, until I simply came to respect the way he operates, but after the recent insider trading scandal of David Sokol, a new wave of Buffett bashing has emerged- with a fury.

Buffett isn't shy about calling out wrongdoing elsewhere; his shareholders will want to know why he lets this kind of thing go on right under his nose.

Instead of condemning Sokol, Buffett gave him a pat on the back on the way out the door. Since when is it enough to merely uphold the letter of the law, especially at Berkshire? Whatever happened to Buffett's famous saying, "Lose money and I will forgive you, but lose even a shred of reputation and I will be ruthless"?

He’s been called a hypocrite, a cheat, a liar, and God knows what else lately.

I didn’t even bother checking on what happened after Charlie’s admission.

And then there’s Michael Steinhardt.


That magnificent bastard had to go on and lash some truthiness on CNBC, causing another PR shitstorm and a reawakening of the anti-Buffett insurgence.

Will this be the end of Warren Buffett’s exalted status?

The vitriol against him today has never been worse and Berkshire’s meeting at the end of this month could prove interesting. Sorkin even equates it to a grand inquisition.

Or can he just shrug all this off and still be Warren Buffett, the Oracle of Omaha? The Greatest Investor alive?

Have a good one WSO.

 

Investors Chronicle had an awesome article (4 or 5 issues back) by Jim Slater, where he just lays into Berkshire Hathaway.

It was after Charlie Munger said that "gold was for jerks" (paraphrasing), and apparently Jim Slater didn't take too kindly to it.

 

Saw that appearance on CNBC and almost couldn't believe that the host couldn't even read the telemprompter at the beginning.

" A recession is when other people lose their job, a depression is when you lose your job. "
 
Best Response

I caught the Sokol interview with Becky and Kiernan last week and Joe did a great job trying to call him out for front running and what not after they basically got him to admit step by step exactly what he did.

Its about a 30 minute interview, but if you have a chance I would highly recommend watching it, it is rather entertaining.

I've always liked and respected Buffet, but this is very strange. As I remember Sokol was in the running to be head of Berkshire after Buffet steps down, but after the Lubrizol mess he is mysteriously "stepping down" to start his own fund because apparently he wants to "do things his own way". There was obviously some talks between him and Buffet that caused him to leave. I think Buffet needs to own up to why he decided to let Sokol go and admit that he felt there was wrong doing on Sokol's part.

 

Buffet has tarnished he reputation by trying to sweep this under the carpet. He is supposedly big on reputation and maintaining the reputation, but, this has indeed damaged his reputation and Berkshires. For all the talk about coming down hard on those that damage the reputation, he has come down as hard as a pillow falling off the bed. There is a clear governance problem at the top if $10,000,000 in shares are bought in a few months before the purchase and no one knows.

"yeah, thats right" High-Five
 

I'll be at a Q & A with Mr. Buffett today in Omaha with Global IRC students. I'm guessing he wont address the Sokol fallout (as he shouldn't have to in this setting). In my opinion Buffett has received a lot more negative criticism about Sokol's resignation than he deserves, but I'm long Berkshire so take it for what its worth.

 

Warren's a great lesson to some of you ambition obsessed dudes. He long ago passed his prime and is now pimping his connections to squeeze out an extra billion or ten, here and there. I don't have anything against the man but the longer you stay in the limelight the dirtier your hands will get and the more tarnished your legacy becomes. At this point, he's really nothing more than a TBTF institution himself. Certainly at many points asking himself: but what's it all worth, when I can't take it with me under this earth.

 
Midas Mulligan Magoo:
At this point, he's really nothing more than a TBTF institution himself.
How is Buffett a TBTF institution? He bailed out GS with cash Berkshire had piled up for the "rainy day" and earned a nice return for his investors in the process. The financial crisis came and Berkshire had over $40 billion in cash, not much need for the TBTF fail tag for a conglomerate that operates within economic moats. Even now Berkshire still has well over ~$25 billion in cash after the Lubrizol deal. I'm not calling you out Magoo, but many people (I'm sure lots on WSO) dont understand the revenue driver for Berkshire is what Buffett has done with the insurance businesses. The value, growth, and negative returns these insurance companies are earning on the float provide Berkshire with a perpetual free cash source over time to invest or acquire companies. He isnt perfect and has admittedly made mistakes, but his legacy wont end with his passing.
Midas Mulligan Magoo:
Certainly at many points asking himself: but what's it all worth, when I can't take it with me under this earth.
Considering nearly all of his fortune is going to charity and effectively none will fall in the hands of the government I'd say its worth more than we can imagine to him. Buffett's charitable giving will see his greatest return in the long run, return on human capital that is.
 
Midas Mulligan Magoo:
Warren's a great lesson to some of you ambition obsessed dudes. He long ago passed his prime and is now pimping his connections to squeeze out an extra billion or ten, here and there. I don't have anything against the man but the longer you stay in the limelight the dirtier your hands will get and the more tarnished your legacy becomes. At this point, he's really nothing more than a TBTF institution himself. Certainly at many points asking himself: but what's it all worth, when I can't take it with me under this earth.

Well, sometime you don't have the call to quit. You just can't quit. Similar things have happened lots of times.

 

What irks me is this, why is Buffet taking all of this heat for what someone else did? The media has pretty much focused its lense on Buffet and left Skol to go right on his merry way.

Follow the shit your fellow monkeys say @shitWSOsays Life is hard, it's even harder when you're stupid - John Wayne
 
heister:
What irks me is this, why is Buffet taking all of this heat for what someone else did? The media has pretty much focused its lense on Buffet and left Skol to go right on his merry way.

When you're president, at the end of the chain you are ultimately responsible for compliance/corporate gouvernance failures... Which this example clearly relates to.

 
heister:
What irks me is this, why is Buffet taking all of this heat for what someone else did? The media has pretty much focused its lense on Buffet and left Skol to go right on his merry way.

Considering that this guy and Bill Gates setup some kind of philanthrophy fund some months ago, I'd say they did this too late.

 
heister:
What irks me is this, why is Buffet taking all of this heat for what someone else did? The media has pretty much focused its lense on Buffet and left Skol to go right on his merry way.

Because he's the self-proclaimed squeeky clean patriarch and because he makes claims of not tolerating a shred of improper behavior. And because if this was a banker/PE/HF guy he would be shitting all over them, instead he's giving Sokol a pat on the back on a job well done and saying he didn't do anything improper.... while clearly he did.

If you were on the Citi deal team pitching to Sokol and you leaked to the media that the Lubrizol CEO was meeting Sokol, you would observe a significant pop in the stock price. The fact that Sokol traded on that insider info, makes it pretty obvious there was impropriety there. If you were a Lubrizol shareholder and were thinking about selling your stake, the fact that one of Berkshire's key executives was meeting with Lubrizol management is something you would absolutely want to know before making your decision. If you were deciding whether or not to buy Lubrizol shares, you'd absolutely want to know that Buffet's fixer was meeting Lubrizol management. Thats the definition of insider info. He very clearly traded on "information a reasonable investor would want to know before making an investment decision". Add to that the fact that Sokol admittedly only makes 3 or 4 trades a year... its pretty obvious how eggregious this is.

Buffet is smart enough to see that, he'd just rather sweep it under the rug. He's a CEO and its his job to condemn such behavior when it surfaces, instead he's covering it up. Likely because he wields a significant amount of influence and power in the government and he doesn't want to see his long-time associate and probably friend indicted and strung up on insider trading charges. The reason the SEC still has not to date sunk its claws into Sokol is because Buffet gave him a get out of jail free card.

 

^strongly disagree midas. Warren's skills continue to grow with age. This has tarnished his legacy to some degree, but the reality is that he's still a great investor. Of course he can't put up the same returns as he could during the early years when he had only a few billion dollars to invest, but some of his recent investments have been some of his most successful on a risk return basis. The 25 billion dollar railroad play is turning out to be a great move. Goldman deal was a great move. This Lubrizol deal is also going to end up being a good investment (I think), despite the front running issue.

I agree witth the fact warren screwed up - but I don't think he's past his prime.

 

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