The Truth About Wall Street from Warren Buffett
By Shlomo Maital
Each year, legendary investor Warren Buffett, CEO of Berkshire Hathaway, writes a letter to shareholders, the mostly widely read document of its kind, as it has many pearls of wisdom – and of course, Buffett’s incredible track record gives him credibility. You can easily download and read the whole thing. I recommend it. Here are some snippets, drawn from Andrew Ross Sirkin’s New York Times column on March 4:
On Investment Bankers: “…constantly urge acquirers (of companies) to pay 20 to 50 per cent premiums over market price….they tell the buyers the premium is justified for ‘control value’ …a few years later bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to ‘unlock shareholder value’.” Sorkin comments “there are countless example of the build-it-up-and-tear-it-down phenomenon, like Hewlett Packard.” Of course, investment bankers charge huge fees for this brilliant manipulation.
Any true redeeming social value in all this? Buffett sees none and neither do I.
On Wall St. in general: “Money-shufflers don’t come cheap”. Money shuffling. Any true redeeming social value in this? You won’t find it with an electron microscope.
On private equity: “Equity is a dirty word for many private equity buyers; what they love is debt. And because debt is currently so inexpensive these buyers can frequently pay top dollar. Later the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise.”
Sorkin quotes Buffett’s comparison of Berkshire Hathaway (which buys share and companies, and holds them, often forever) and other investment funds: “You can sell it to Berkshire and we’ll put it in the Metropolitan Museum…by itself, it’ll be there forever. Or you can sell it to some porn shop operator, he’ll stick it up in the window and some other guy will come along in a raincoat and he’ll buy it.”
And yes, Buffett believes in real companies that make real stuff, like Heinz ketchup.
An enormous industry is thriving on the cheap money that American and European central banks are printing. That money was supposed to finance real capital formation. Instead it is financing speculative money-shuffling, making big profits for the very people who crashed the world’s economy in 2008.
If you don’t believe me, ask Warren Buffett. Or read his letter.