Author Topic: Interview with Alice Schroeder  (Read 18048 times)

LC

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Re: Interview with Alice Schroeder
« Reply #20 on: December 04, 2013, 07:23:31 PM »
Correct, 'Asperger's' is now recognized as being on the Autism spectrum of disorders.

Does anyone have a link or copy of Schroeder's PaineWebber report of BRK? I'd love to see her methodology in-depth. Being...11 years old at the time I didn't quite jump over the other kids in the class to get a copy from my local broker :D
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ERICOPOLY

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Re: Interview with Alice Schroeder
« Reply #21 on: December 04, 2013, 07:23:36 PM »
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.

Some of these (and I am no doctor) sound like symptoms of asperger's, which Burry has been diagnosed with.

That's what I was thinking.

Asperger's Syndrome is an obsolete diagnosis now rejected as too vague. 

I once sat in a TQM training session in 1999 and watched an audio video feed of Buffet, Gates, Ted Turner, Richard Branson and Steve Case.  After a few minutes, my wife poked me in the ribs and said, "Case is the only one who is normal".

She was right. The other four were hyper excitable, bubbling over with synergistic insights they were eager to share as they lighted up with voltaic energy in the aura of their combined mental insights. Each one of the four who weren't normal stuttered slightly in restrained eagerness to share golden nuggets of wisdom. 

It definitely wasn't normal, but it wasn't pathological either. That must have been what it was like when Leslie Groves confined the greatest minds in theoretical physics on the mountain plateau of Los Alamos, NM until they hatched the bomb. :) :(

It has been rejected and now the official diagnosis is just "Autism" -- of course, that's a spectrum so it is vague.  The idea of Asperger's was just "high functioning Autism".  We always understood that distinction before the term "Asperger's" was thrown out -- it's too bad, because at least before it was rejected it was implicitly understood to be "high functioning" -- now it takes extra words to explain that to people

My daughter was diagnosed with Asperger's 6 years ago.  While I'm not the world's expert on it, I've given it a good deal of thought.  You can't put her in the room with other Autistic children and say "yeah, they all have the same thing". 

She's not the only one in the family to have similar traits, but we wanted the diagnosis so that we could get her an "IEP" in the public schooling system.  Now she gets a lot of help from the public school that she can't get without the diagnosis. 
« Last Edit: December 04, 2013, 07:26:37 PM by ERICOPOLY »

wellmont

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Re: Interview with Alice Schroeder
« Reply #22 on: December 04, 2013, 08:14:47 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?

I don't buy this at all. buffett invested $10s of billions in that period. He added so much value...He bought Burlington in late 2009. brk had no need to borrow.

wellmont

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Re: Interview with Alice Schroeder
« Reply #23 on: December 04, 2013, 08:20:14 PM »
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     

the put options were never dangerous. He takes money In and invests it. And if he loses, which was highly unlikely, he would have paid way down the line, a fraction of the net worth of the company. the media had a hissy fit about them. And that was so annoying that he probably wishes he never did it. Because it was annoying when people who did not understand what he was doing had a platform to misinform. The put options were safe because he knew what his total exposure was when he wrote them.

ItsAValueTrap

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Re: Interview with Alice Schroeder
« Reply #24 on: December 04, 2013, 08:41:18 PM »
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     

the put options were never dangerous. He takes money In and invests it. And if he loses, which was highly unlikely, he would have paid way down the line, a fraction of the net worth of the company. the media had a hissy fit about them. And that was so annoying that he probably wishes he never did it. Because it was annoying when people who did not understand what he was doing had a platform to misinform. The put options were safe because he knew what his total exposure was when he wrote them.

She's saying that the put options are the reason why Berkshire lost its AAA credit rating, which affected the ability of its reinsurance business to get good rates.  With a AAA rating, his reinsurance units could have written a lot of business and he could have invested all of that float.
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LC

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Re: Interview with Alice Schroeder
« Reply #25 on: December 04, 2013, 09:02:01 PM »

She's saying that the put options are the reason why Berkshire lost its AAA credit rating, which affected the ability of its reinsurance business to get good rates.  With a AAA rating, his reinsurance units could have written a lot of business and he could have invested all of that float.

Many thanks for the explanation!
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wellmont

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Re: Interview with Alice Schroeder
« Reply #26 on: December 04, 2013, 09:25:00 PM »
Here is what Buffett has to say about gen re in the 2009 annual. He explains why they did not have to post collateral in 2009.

Our third insurance powerhouse is General Re. Some years back this operation was troubled; now it is a gleaming jewel in our insurance crown. Under the leadership of Tad Montross, General Re had an outstanding underwriting year in 2009, while also delivering us unusually large amounts of float per dollar of premium volume. Alongside General Re’s P/C business, Tad and his associates have developed a major life reinsurance operation that has grown increasingly valuable.

With limited exceptions, our equity index put option and credit default contracts contain no collateral posting requirements with respect to changes in either the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. Under certain conditions, a few contracts require that we post collateral. As of December 31, 2009, our collateral posting requirement under such contracts was $35 million compared to about $550 million at December 31, 2008. As of December 31, 2009, had Berkshire’s credit ratings (currently AA+ from Standard & Poor’s and Aa2 from Moody’s) been downgraded below either A- by Standard & Poor’s or A3 by Moody’s an additional $1.1 billion would have been required to be posted as collateral.

this from the 2008 annual: General Re, our large international reinsurer, also had an outstanding year in 2008.
« Last Edit: December 04, 2013, 09:46:16 PM by wellmont »

AZ_Value

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Re: Interview with Alice Schroeder
« Reply #27 on: December 04, 2013, 11:38:31 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?

I don't buy this at all. buffett invested $10s of billions in that period. He added so much value...He bought Burlington in late 2009. brk had no need to borrow.

+1

I haven't read the interview and will try to do so tonight, but this is complete nonsense.
Quote
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

How is it considered to be tepid when you spend $26 Billion to buy Burlington, put $5 billion in Goldman, $3 billion in GE, buy $300M of Harley Davidson bonds, and also participate as a financing partner in the Mars and Wrigley deal to the tune of $4.5 billion.
And every quarter that went by it seemed like he was buying tens of millions (if not hundreds) of additional WFC and other stocks.

Does Schroeder have any numbers or anything like that to tell us how she figures WEB became tepid?

Actually WEB never let up throughout the entire time those puts have been on BRK's books, early 2011 he spent $9 billion to acquire Lubrizol, then put $5 billion into BAC, and let's not forget when we woke up to find out that he had put $11 billion into IBM. And all along the "derivatives" that the media (and Schroeder) were focusing on were swinging up and down each quarter.

Alice Schroeder has been such a big disappointment (IMHO).

« Last Edit: December 05, 2013, 12:10:48 AM by AZ_Value »

AZ_Value

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Re: Interview with Alice Schroeder
« Reply #28 on: December 04, 2013, 11:44:22 PM »
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     

The puts in question were sold by BRK. i.e. He's not buying puts to hedge or protect his downside, he thinks that the markets will be much higher in 15 or 20 years or whenever they expire thus doesn't expect to pay anything on them while he gets to collect the float upfront to invest in the meantime.
« Last Edit: December 05, 2013, 12:02:10 AM by AZ_Value »

ragu

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Re: Interview with Alice Schroeder
« Reply #29 on: December 04, 2013, 11:47:39 PM »
She's saying that the put options are the reason why Berkshire lost its AAA credit rating, which affected the ability of its reinsurance business to get good rates.  With a AAA rating, his reinsurance units could have written a lot of business and he could have invested all of that float.

She's not saying that at all.

However, you do have one thing in common with Ms. Schroeder: You are both wrong about the puts handcuffing WEB in a manner that had significant implications for Berkshire shareholders.

Best,
Ragu