Author Topic: Interview with Alice Schroeder  (Read 16751 times)

LC

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Interview with Alice Schroeder
« on: December 03, 2013, 05:15:24 PM »
http://seekingalpha.com/article/235292-behind-the-scenes-with-buffett-s-biographer-alice-schroeder

I encourage this read. It may seem long but well worth it. Alice makes it quite clear how ruthless Warren can be and how well-versed he is in manipulation, if you want to call it that.

*From 2010 as Liberty pointed out. Thanks :)
« Last Edit: December 03, 2013, 08:48:52 PM by LC »
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LC

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Re: Interview with Alice Schroeder
« Reply #1 on: December 03, 2013, 07:18:26 PM »
Curious if anyone has knowledge of this this:

Those equity index puts that created issues with the rating agencies. I think the reason he had difficulty with those is that he knew immediately how to price them and that the odds were very high that they would make money for Berkshire, if looked at on their own as contracts.

The other elements that were subjective — the way they would create short-term volatility in the balance sheet; the way hedgers might respond; the regulating agencies — these didn’t come into the equation because the trained, automatic part of his mind fastened on how much money could be made and the probability.

If you think about it carefully you realize how costly the equity index puts were in the financial crisis. Berkshire got the float from them to invest, but its negotiations with the rating agencies meant that, at a time when markets were in turmoil, during the very crisis that Warren had been waiting for all those years to put the tens of billions of dollars to cash to work, he couldn’t do it. He was able to participate in the market crash only in a tepid way. That opportunity cost has to be offset against the expected profit from those equity index puts. They weren’t worth it.


Can anyone fill in more detail, especially regarding how Buffett was unable to pounce in 2008 due to negotiations? Was he unable to invest cash because of these puts on the B/S which would somehow affect BRK's credit/collateral reqs?
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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Liberty

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Re: Interview with Alice Schroeder
« Reply #2 on: December 03, 2013, 07:49:50 PM »
Wow, that's novella-length. I'm digging in, thanks!


Update: I think I already read this one, but it was probably around the time it was released in 2010, so I've forgotten many of the details and flavor of it. Good to revisit.
« Last Edit: December 03, 2013, 08:37:36 PM by Liberty »
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen

hyten1

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Re: Interview with Alice Schroeder
« Reply #3 on: December 03, 2013, 08:41:02 PM »
nice read, LC nice find, i thought this was interesting:

Miguel: Do you think there is particular reason for his focus on consumer and financial companies?


Alice: Yes. With financial companies you have leverage that can be controlled, “regulatory oligopoly,” and trust. Insurance float is only one example of leverage. The spread on “float” in banking can be controlled too, if you lend intelligently. Banking is a nice little business for the few who are willing to do it in a vanilla manner. “Regulatory oligopoly” is the entrenched competitive position that’s, in effect, provided by your regulator and its rules. It can give you quite a few, or few hundred, extra basis points of return.

I think Buffett’s consumer plays have been overrated as a theme. He likes good companies with enduring business models. Many happen to have been consumer companies. He got intrigued by the idea that a brand could be a very enduring asset. Then he was surprised at how quickly the value of brands eroded in the 1990’s. Brands with true “moats” are exceedingly rare. Of course he wants one when he can get it, but these companies usually also are expensive.


....

If you think about it carefully you realize how costly the equity index puts were in the financial crisis. Berkshire got the float from them to invest, but its negotiations with the rating agencies meant that, at a time when markets were in turmoil, during the very crisis that Warren had been waiting for all those years to put the tens of billions of dollars to cash to work, he couldn’t do it. He was able to participate in the market crash only in a tepid way. That opportunity cost has to be offset against the expected profit from those equity index puts. They weren’t worth it.


....

Lastly, investing is not a religion. It’s not like you have to follow a creed. Warren will buy things that are simply cheap. He’s pragmatic. There’s no rule that he has to be absolutely consistent. If he sees something that he thinks is undervalued he’ll occasionally buy it, even if it’s a Korean dairy company. Then he’ll sell it. Everything doesn’t have to fit into a perfect framework.

« Last Edit: December 03, 2013, 08:57:18 PM by hyten1 »

no_free_lunch

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Re: Interview with Alice Schroeder
« Reply #4 on: December 03, 2013, 08:51:09 PM »
Great link.  Long but quite short compared to the snowball book.  I like this quote:

Quote
He is being forced to accept lower returns than smaller investors simply by virtue of his market cap limitation. He’s given fair warning of this often enough, so it shouldn’t surprise us now. He’s often spoken nostalgically of how much better he could do running a smaller portfolio.

Therefore, let’s invert the situation. If you are running a smaller portfolio, the stocks he owns are interesting to consider, but not necessarily the first place I would look for investment ideas.

ASTA

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Re: Interview with Alice Schroeder
« Reply #5 on: December 04, 2013, 01:25:05 AM »
If you think about it carefully you realize how costly the equity index puts were in the financial crisis. Berkshire got the float from them to invest, but its negotiations with the rating agencies meant that, at a time when markets were in turmoil, during the very crisis that Warren had been waiting for all those years to put the tens of billions of dollars to cash to work, he couldn’t do it. He was able to participate in the market crash only in a tepid way. That opportunity cost has to be offset against the expected profit from those equity index puts. They weren’t worth it.

I think this quote is very good. As it once again reinforces my idea of put options being very dangerous and as I see it cash is always 90% better alternative. As one should just wait until an opportunity arises and then invest. Be it 10 years or not cash is just so much simpler then theses puts. Rather sleep tight and wait opportunity's always arises some times(hopefully not ten years ala Munger).
Thanks for bringing it up LC       

claphands22

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Re: Interview with Alice Schroeder
« Reply #6 on: December 04, 2013, 02:33:19 AM »
http://seekingalpha.com/article/235292-behind-the-scenes-with-buffett-s-biographer-alice-schroeder

I encourage this read. It may seem long but well worth it. Alice makes it quite clear how ruthless Warren can be and how well-versed he is in manipulation, if you want to call it that.

*From 2010 as Liberty pointed out. Thanks :)

Posted this on reddit a day ago, I am guessing you saw it there.

Miguel Barbosa, who did the interview with Alice Schroeder, does fantastic work.  He writes at www.klevr.org and www.interviewsforinvestors.com and occasionally at www.simoleonsense.com
« Last Edit: December 04, 2013, 02:38:05 AM by claphands22 »

tombgrt

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Re: Interview with Alice Schroeder
« Reply #7 on: December 04, 2013, 02:55:34 AM »
Didn't his inability to invest more come from the fact that he was on the hook for those puts if things got worse?

How does an individual get hurt if they just buy some OTM puts to protect their portfolio for when the market crashes? If really wanted, It can be a reasonable hedge (for a fraction of the portfolio) when you go for stocks that have a long way to fall in a market decline, think Linkedin, amazon, .. but a basket approach is probably wise. I prefer this with 100% long exposure compared to 60-80% long and 20-40% cash. Generally I wouldn't hold cash or put options and just go 100% long but US market level is slowly making me nervous.

http://seekingalpha.com/article/235292-behind-the-scenes-with-buffett-s-biographer-alice-schroeder

I encourage this read. It may seem long but well worth it. Alice makes it quite clear how ruthless Warren can be and how well-versed he is in manipulation, if you want to call it that.

*From 2010 as Liberty pointed out. Thanks :)

Thanks. I'd bet that almost anyone at a certain corporate level (upper management) is good at manipulation, part of the game. Knowing this it is not surprising that he is as well.

deepValue

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Re: Interview with Alice Schroeder
« Reply #8 on: December 04, 2013, 08:38:43 AM »
Great interview; I hadn't seen this before.

btw:

-"Warren is extremely precise and literal in what he writes and says"
-"reluctant to criticize anyone and hypersensitive to criticism himself"
-"He’s got a keenly honed sense of justice"
-"[Susie] enabled him socially to overcome his shyness" and Dale Carnegie, "hard work in the social area to overcome his natural awkwardness"
-"a great synthesizer and especially strong at pattern recognition"
-"Repetition doesn’t bore him the way it bores other people."
-"his emotional pendulum swings in a very narrow arc"
-"prodigious memory"

You could probably say all the same things about Michael Burry.

matjone

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Re: Interview with Alice Schroeder
« Reply #9 on: December 04, 2013, 11:21:23 AM »
This is the first time I've heard of Barbosa and I really liked him.  He asks good questions and it seems like he knows when the audience is going to want more explanation.

I am with you on market valuations, tombgrt.  I also have a couple quotes rolling around in my head.  One is from Buffett in '99 when the market was at 40x earnings and he said that if he was running a small portfolio he'd be fully invested.  The other is from Walter Schloss who said he had  been fully invested his entire career.
When stocks are high, money rates rising, and business prosperous, at least half a given fund should be placed in short-term bonds. - Philip Carret