Is Buffett Talking Up His Own Book?

One of the things that drives me berserk about the financial media is its tendency to be skeptical about things it oughtn't be, and its tendency to be credible about things it oughtn't be.

Maybe that's two things. Anyway, it's two sides of the same coin. As exhibit A I point you to Marketwatch.com, where David Weidner penned an article about Warren Buffett that I think is equal parts sad and stupid.

Why is Weidner writing about Warren Buffett? I mean, beyond the fact that everyone is? Well, this past week Buffett penned an article for The New York Times stating that he was buying stock in American companies, and suggesting that others do the same. (See "Buy American. I Am.")

Weidner responded to Buffett's article by making the following points/accusations:

  • That because Buffett can get better terms than you, his advice does not apply to you.
  • That Buffett wrote the Times article to talk up shares because his recent investments in General Electric (NYSE: GE  ) and Goldman Sachs (NYSE: GS  ) preferred shares were underwater, and he needed to "stir up some buying" to get their prices back up.
  • That the stocks Buffett's buying for his personal account are irrelevant, since he made his fame with his gains at Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) .

The "Rich Guy" lament
It's altogether typical for some financial journalist to take a swing at Buffett. Buffett is certainly not above criticism, but usually these commentaries have the effect of highlighting the frailties of the writer, not of Buffett. David Weidner's column is one of the more pathetic examples thereof, if for no other reason than because it betrays a nearly painful ignorance of Buffett's history as an investor, his past comments about the markets, and the things that are and aren't important to him.

Buffett's Times article is the latest in a series of very rare public calls that Buffett has made over his career regarding the price of the market. In the midst of a grueling bear market in 1974, he said he felt like "an oversexed guy in a whorehouse" because shares were so cheap. He was right. In 1999, he said that the market's returns over the next decade would be disappointing. He was right.

And then there's the performance of Berkshire Hathaway shares over the past 44 years since Buffett took the helm. One need not quibble on the margins to understand that Buffett tends to be right about lots of things when it comes to valuing securities -- and occasionally, the market.

Buffett very carefully notes that he doesn't know whether we're at a market bottom, nor does he know where the market will be even a year from now. He's not timing the market -- he's just saying that it's cheap. When he's said these things in the past -- and when he's said the opposite -- he has always been right. There is no reason that Warren Buffett should comment on these things. He has little to gain -- people sneered at the "old man" in 1999 for his claim that the market was overvalued.

What makes Warren Buffett such an important, influential investor is not just his phenomenal returns, but also his willingness to talk about what he does, his willingness to teach. Is there evidence in the past of Warren Buffett making a macroeconomic call that was talking up his book? He was a stock buyer in 1999 at the same time he was calling the market overvalued. Buffett wasn't always BUFFETT. Goldman Sachs gave Buffett the deal he got specifically because the market considers a vote of confidence from Warren Buffett more important than a vote of confidence from anyone else -- including the federal government.

Warren Buffett: Suddenly freaked out about stock quotes
Where does this enormous pool of goodwill come from? Apparently it doesn't occur to Weidner that Buffett gained it by never engaging in the very behavior Weidner accuses him of.

That behavior includes trying to influence the market for some short-term quotational advantage. To suggest that Buffett cares about the fact that his Goldman and GE warrants are out of the money in the month after he entered into the deal is to ignore the fact that he hasn't used the public arena to talk up Berkshire stock, which comprises more than 95% of Buffett's total net worth (and which, Weidner conveniently forgets, he has pledged entirely to charity). Buffett has stood silently in the past -- on several occasions -- as Berkshire stock has dropped 50% or more.

Buffett never spoke up to prop up the price of any of his long-term holdings. Not McDonald's (NYSE: MCD  ) , nor Coca-Cola (NYSE: KO  ) , nor even tiny GATX. A few choicely placed words for the latter could have sent it into the stratosphere. And yet, nothing. Ever. Yet now we're to believe that he was so concerned about the one-month performance of Goldman and GE that he fires off an article that doesn't bother to mention them?

Really? That's your point? Are you sure?

After all, Buffett told us almost seven years ago that he'd be buying stocks today. In 2001, Buffett wrote an article in Fortune magazine stating that the U.S. stock market would be attractive when it traded at a price-to-GNP of 0.7 to 0.8. Guess where it is right now? I calculate the Wilshire 5000's total market cap at roughly $10.7 trillion, and dividing by the GNP, which is $14.4 trillion, I get 0.74. Don't you hate it when people do what they say they were going to do?

Buffett apparently used the non-famous account
The last element I just think is bizarre. Weidner notes that Buffett is buying stocks in his personal account, but that "his fame, success, and fortune ride" with Berkshire. This after Weidner has just made a point of critiquing several monster purchases that Buffett made in Berkshire Hathaway, and further failing to mention the billions he's recently invested in Wrigley, Swiss Re, Constellation Energy, and Burlington Northern (NYSE: BNI  ) . Which is it?

Buffett has deployed more than $40 billion in the past 10 months, much of it in non-"sweetheart" deals using plain old common stock. He's waited years to do so, while people have screamed that he should just dividend his cash out. And now, in the midst of a market crisis, he does what he has always said he would do in a crisis of confidence. He bought, recommended that others do the same, but did not bother to specify which securities they should buy, least of all suggesting ones he himself had bought. If this were some conspiracy to keep you poor, it would be the world's stupidest.

And yet, here is hapless David Weidner, coloring it as just that. Maybe Warren Buffett really did wait more than a half-century to show the slightest bit of concern about the quotes of a couple of securities that make up a fraction of his net worth.

Yeah, maybe. That's got to be it.

Bill Mann owns shares of Berkshire Hathaway and Goldman Sachs -- one of which he got at a better price than Buffett. Berkshire and Coca-Cola are Motley Fool Inside Value recommendations. Berkshire is also a Stock Advisor selection. The Motley Fool owns shares of Berkshire. Read about the Fool's disclosure policy here.


Read/Post Comments (26) | Recommend This Article (139)

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  • Report this Comment On October 21, 2008, at 3:10 PM, rwmcmullin wrote:

    Well said. Clearly, Buffett is one of the few that has the patience to wait. Maybe he does time the market? But, it is a time window that spans decades.

  • Report this Comment On October 21, 2008, at 3:19 PM, rocksnot wrote:

    Best Fool article I've read in a while.

  • Report this Comment On October 21, 2008, at 3:38 PM, liberty41 wrote:

    Yup. It is nice to invest in a market where the rules keep changing if you get to help write the rules.

    Anyone else, you are nuts to invest.

    Here is why: http://www.lewrockwell.com/orig8/hamilton6.html

  • Report this Comment On October 21, 2008, at 3:52 PM, scorp99cam wrote:

    Thank you,

    I read that same article days ago and have been bothered by it since. I am glad that I am not the only one troubled by the claims made in that article.

  • Report this Comment On October 21, 2008, at 4:19 PM, downisland wrote:

    You Go Bill !!

  • Report this Comment On October 21, 2008, at 4:57 PM, DBrown7 wrote:

    Excellent article, Bill. I'm guessing that Weidner wrote this piece to create controversy, attract eyeballs and raise his own profile.

    He might have succeeded at the first two, but failed miserably at the third, at least among knowledgeable investors.

  • Report this Comment On October 21, 2008, at 5:01 PM, bammerone wrote:

    I read the link to the article and didn't think it was as horrible as all are saying. I am a huge Buffett fan and am re-reading Investing the Buffett Way as we speak. Heed Buffett himself - he wisely recommends that we take his strategy and make our own decisions and not replicate every move.

    I think the columnist had two very pertinent points.

    1) You and I are not going to get the terms on GE that Warren got. Its close to loan shark rates he got at the very depths of the credit crisis. that is great for BRK-A, but didn't help the shares of GE that I held long, it potentially diluted their value if he exercises those warrants..

    2) When Warren speaks, a lot of people listen. I hope it causes people to analyze and buy stocks at the opportune time. I venture to say a lot of folks say hmmmm, what does Warren own, and guess what, they buy those stocks. its the Day after impact that provide bounce for his holdings.

    I agree with the comments here that Buffett in no way made these comments to intentionally move the market to the stock, but noentheless, the market and stocks moved.

  • Report this Comment On October 21, 2008, at 6:23 PM, TedRoosevelt wrote:

    You are dead on. Another example of the worthless dribble that inundates the investing public from financial writers who probably don't keep their own head above water with their personal accounts. I listen to Buffett. He's made a big difference in my net worth over the past 15 years as he steered past the tech bubble and predicted the present debacle. I'm being greedy and buying at these attractive prices including buying more Brk last week and also 3 weeks ago.

  • Report this Comment On October 21, 2008, at 6:24 PM, mickeyc21 wrote:

    Of course he is talking his book and so are you.

    The first article that came up with your name lauded Tim Hortons as an example of your investing genius. You managed to pick the exact high point of both the stock and the Canadian currency so anyone naive enough to follow your blog has been savaged.

    This website has had about 20 cover stories over the last year with titles like "What would Buffett do?"

    No we know for a fact he was in cash.

  • Report this Comment On October 21, 2008, at 9:12 PM, TMFOtter wrote:

    mickeyc21 --

    You mean this article, I assume:

    http://www.fool.com/investing/international/2007/09/20/whyd-...

    That's an article that described the fact that Tim Hortons had gone up because the dollar had declined against the Canadian dollar. Nowhere in the article did it say "buy Tim Horton's," or did it make any qualitative judgments about Tim Hortons as an investment at that time.

    Facts are awesome things, and should be used with great caution and care.

  • Report this Comment On October 21, 2008, at 10:32 PM, mickeyc21 wrote:

    Your readers are unsophisticated investors. They do follow your suggestions.

    The Loonie has dropped 20% since your Tim Horton "no recommendation" and THI has dropped 31%. Facts are indeed wonderful things.

    This also happens to be the first and only stock I looked up that you had mentioned. God knows what else you have not made a "qualitative judgment" about.

    Your arrogant defense of your endless stock pumping does you no credit. One thing I know about know-it-all advisers is that they drink their own kool-aid which means your portfolio is heavily in the red this year.

  • Report this Comment On October 21, 2008, at 10:52 PM, mickeyc21 wrote:

    Your personal email to me:

    RE: Tim Hortons

    Tuesday, October 21, 2008 7:31 PM

    From:

    "Bill Mann" <BillM@fool.com>

    My portfolio is fine. I've been mostly in gold, Berkshire and McDonald's.

    I didn't suggest they buy Tim Hortons. I don't think you can read.

    ..........................................................

    In other words you don't own the foreign stocks you tell your customer to buy! Very nice.

    How do you spell "ethical" again?

    The personal insult is a great touch.

  • Report this Comment On October 21, 2008, at 10:55 PM, HeartlandLiz wrote:

    Thank you for the well-written article, Bill. I have been annoyed with all these naysayers since Mr. Buffett's op-ed piece came out in NYT.

    Afterall, what he is saying makes a lot of sense - buy great companies at cheap price. I can't understand what is wrong with this principle.

  • Report this Comment On October 21, 2008, at 11:27 PM, redneckdemon wrote:

    mickeyc21:

    I fail to see how an evaluation of a company is a recommendation to buy. I like hear what other people think about a company for the same reason I go see a doctor about strange lumps: I'm neither an expert, nor perfect. Second opinions are wonderful things, it doesn't mean you have to agree with them. I'm of the opion that anyone who see a stock mentioned on the net or in the news and then runs right to buy it without doing some research of thier own first (research that the Fool recommends after almost every evaluation) is a freaking moron and deserves to learn their lessons the hard way.

    I also tend to agree that anyone thinking that a proven LONG term investor is looking to make a quick buck in under a year is both blind and dumb. Of course, I could be wrong. It happens from time to time.

  • Report this Comment On October 22, 2008, at 11:51 AM, zarley00 wrote:

    Excellent Bill. You're still the best writer at TMF. Keep up the good work.

    Matt (aka Zarley00)

  • Report this Comment On October 22, 2008, at 2:55 PM, LHK72 wrote:

    mickeyc21:

    Judging by your comments, you must be mightily ticked off that the stock you chose to buy after reading one article is tanking.

    I take issue with a number of your comments, including:

    "In other words you don't own the foreign stocks you tell your customer to buy! Very nice.

    How do you spell "ethical" again?"

    You are aware that Motley Fool has a disclosure policy, right? It clearly states at the end of the article,

    "[Bill Mann] holds none of the companies mentioned in this article. GigaMedia and China Mobile are Global Gains recommendations."

    Not to mention Mann himself states, "Now, I'm not saying that the dollar will continue to go down. What I am saying is that investors who diversify away from their home currency do themselves a huge favor by looking overseas for investments."

    And he's STILL RIGHT! Only owning US Stocks really isn't diversifying your portfolio. And frankly 1 year is hardly enough time to give a stock to post healthy gains. MF is pretty clear about their 5-10 year plan. Foreign stocks could be a great balance to other stocks in your portfolio.

    You also comment,

    "This website has had about 20 cover stories over the last year with titles like "What would Buffett do?"

    Now we know for a fact he was in cash." Evaluating Buffet's personal investments vs. his BRK investments are 2 different things. I'm sure much of Buffet's personal investments were in cash, but BRK is invested in value stocks, just like the MF advocated.

    Finally the all encompassing, ridiculous statement, "Your readers are unsophisticated investors. They do follow your suggestions." Seriously? I see that you've done a thorough analysis of the investors on this site...so if you truly think it's amateur hour and you're past it, why are you still here??

  • Report this Comment On October 22, 2008, at 5:00 PM, mickeyc21 wrote:

    redneck - I agree with you. Do your own research.

    LHK72 - How about reading my blog which clearly states my investment strategy for the last year.

    You are a classic example of why I read this site. The answer to the questions you are asking are at your finger tips but you make up your mind without any research.

  • Report this Comment On October 22, 2008, at 9:31 PM, crash2g wrote:

    Bill does his best writing when he is pissed off. Nice work.

  • Report this Comment On October 23, 2008, at 1:36 AM, XMFRelentless wrote:

    Greatest article. Ever.

  • Report this Comment On October 24, 2008, at 2:15 PM, DFNmoney wrote:

    mickeyc21's comments are all over the place. refute one of his ridiculous statements and he ignores that and distracts you with another equally ridiculous statement. at any given time, you can click on any TMF affiliated poster and check his/her personal holdings.

    of course, checking Bill's holdings shouldn't mean anything - do your own research.

    finally, we see the real reason mickey is stirring the pot - to draw attention that he has, sit down for this, a blog. sign me up, man. i'll read it while my wife reads perez hilton and then we'll trade awesome stories about great blogs.

  • Report this Comment On October 24, 2008, at 6:01 PM, Sallijane wrote:

    I've been an admirer of Warren Buffett for a long time. Since the creation of BRK.B stock made it affordable, though still pricy, for many more individual investors, I have purchased a (very) few shares, starting with just one. Mr. B. has seemed to me to be a voice of rationality in an industry that has seemed to become ever more irrational.

    And go, Bill Mann! Your comments on Mr. B. are right on point.

    As for MF articles, I always read the comments about the writer's ownership, as well as whether any discussed stock is recommended by any MF publication, and actually prefer to find that the majority are not so owned or recommended, as it suggests that there is less subjectivity to the article. I then run any issues that catch my fancy through various other Web sites, watch prices for at least a few weeks, and then make my decisions. All winners? Of course not. But losers are my own fault, and can be limited by stop-losses when I am not as sure as I'd like to be.

    Tim Horton's, which I obtained as a spin-off from Wendy's, has done much better than its former parent, which I should have sold before the recent merger.

  • Report this Comment On October 24, 2008, at 11:56 PM, disaster2008 wrote:

    Great article Bill.

  • Report this Comment On October 25, 2008, at 9:46 PM, annie927 wrote:

    Great rebuttal Bill! Clearly, Weidner needs to do more research on his subjects before he subjects the rest of us to such drivel.

  • Report this Comment On October 25, 2008, at 11:19 PM, apawling wrote:

    this is one of your best articles Bill.

  • Report this Comment On October 26, 2008, at 2:28 PM, LHK72 wrote:

    mickeyc21 wrote,

    "You are a classic example of why I read this site. The answer to the questions you are asking are at your finger tips but you make up your mind without any research."

    I don't know what you're talking about. I didn't ask any questions in my comment - the only questions in my comment were those that you wrote that I was responding to. You have no idea what kind of research I do. After reading the litany of uninformed comments and responses from you here, the last place you'd find me would be your blog.

  • Report this Comment On November 14, 2008, at 6:19 PM, GanznSchmuck wrote:

    Bill,

    You are my MANN!!!! Very good article.

    On Buffett's famous Graham and Doddsville article, almost at the end, after reveling what he thinks is the secret to his (and other famous value investor’s) success, he suggests that someone might ask why he wants to reveal that knowledge. If everybody knows it, then nobody will be able to use it anymore.

    He simply answers: “… the secret has been out for 50 years, … , yet I have seen no trend toward value investing in the 35 years I’ve practice it. There seems to be some perverse human characteristic that likes to make easy things difficult.”

    When Buffett is, as you well point out, doing what he says he was going to do, he is teaching as the same lesson. Some people learn from it and act accordingly. Others, like Weidner, simply don’t get it.

    Regards,

    Arie

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