seshnath
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Posts posted by seshnath
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I agree with you Myth, I thought it was a great article and I have to credit Sorking for showing some independence and asking the tough questions.
"Victimless crime" if you don't count the LZ shareholders who sold their shares to Sokol for $104 before having all the facts presented to them.
Don't forget us, the BRK shareholders who paid for Citi's research that turned up LUZ as a potential buy and allowed Sokol to make a profit.
If Sokol were a CFA Charterholder, he would have violated code VI B of Standard of Conduct
Priority of Transactions. Investment transactions for clients and employers must have priority over investment transactions in which a Member or Candidate is the beneficial owner.
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Aside from the fact that Munger's ownership was through a partnership in which he invested, the big difference is that Berkshire didn't make an offer to buy all of BYD.
This is not even remotely similar. Now, if it comes to light that Munger, for example, bought a big stake in Burlington Northern just before Berkshire made their offer to buy the entire railroad, then that would be comparable.
On a related note, no one has mentioned whether Sokol's actions before that buyout have been looked into. If Sokol knew of the impending offer to buyout BNSF, it should be checked out whether he bought any shares. Or, whether any Berkshire insider did.
Aside from BNSF, I can't think of many other recent buyouts of public companies Berkshire has done...was Clayton Homes the last one before BNSF?
Kit - I was making a similar point in the post on Sokol earlier.
Also, Munger didn't have Berkshire pay for the due diligence/short listing before he decided to buy. That is what Sokol did - Berkshire/subsidiaries paid Citi to short-list the candidates including LUZ, then Sokol decides to buy. In Munger's case, it was clearly the other way round. Sokol used the result of a corporate spending for personal/family benefit.
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In theory this is fine but in pratice it can be much more complicated especially when the wealth is in the form of a privately held business or real estate/farm. In Buffett's case, the problem is simple due his investment fund being BRK's primary asset (even his non security assets were not personally built by him). But, in the case of a private businessman who wants to pass his business/farm to his children who also want to run the business does it make sense to have them to pay cash on an inherited illiquid asset and in some cases force them to sell non-liquid assets to pay a gov't bill?
Packer
WEB was on the invitees before the senate committee reviewing this some time ago. One other gentleman was a farmer with a similar issue. WEB's suggestion after hearing the farmer was that payment of the tax can be deferred to a point where the farm is sold or ceases to be part of the family. Until that point in time, the estate tax due will show up as a liability. I thought it was a brilliant suggestion.
For real estate, can't you 1031 into something more marketable/liquid and then use part of that to pay the taxes?
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I am re-pasting my comments from a different thread since this is more relevant place for it.
From what I have read so far, Mr. Sokol looks culpable because he met Citi investment bankers and not the wealth management guys. As an ex-M&A banker, I can tell you that if I am meeting a guy like Mr. Sokol, I am talking to Berkshire unless he expressively states that he is there in a personal capacity in which case I would have talked to him about a lot smaller companies (than LZ) given the relative size of his checkbook vs Berky’s . In Dec meeting, Citi must have shown him 10-15 “elephant-size” ideas in general which would Buffett criteria of what Berky could buy. These initial meetings are to gauge client’s interest for a deep-dive on a potential M&A idea and/or to get CEOs talking. Even if in the first meeting, citi bankers did not discuss non-public information I would think that in the subsequent meetings they did. If the Citi bankers are doing their job competently, they would have shared non-public information because as a banker you are telling the client (i.e., Berky) something which is not well known or misunderstood about a business and potentially non-public information such as target CEO's willingness to do a deal, etc. The whole idea of such meetings is to highlight the business in the most favorable light for a potential M&A deal. There is an underlying assumption that the discussion is absolutely confidential. I don't know whether the non-public information was discussed or not. But for Mr. Sokol to say that he was meeting Citi bankers in personal capacity is completely naive IMHO. Even if you give him the benefit of the doubt, the timing of the purchase is so close that it does not pass the smell test.
If I were him, I would have called general counsel or outside counsel as soon as Mr. Buffett showed interest in pursuing the discussions.
For him to say Mr. Munger bought BYD before bringing it to Berky is a complete misdirection. One has to understand the timing of Charlie's purchase and the beginning of Berky's involvement. One has to know how many quarters had gone by between Mr. Munger's purchase and serious investment discussion between BDY and Berky. What kind of material non-public information Mr. Munger had before he made his purchases. So that is a different situation in my opinion.
Let's think the other way around - would citi compliance allow bankers to buy the stake around the time Mr. Sokol bought it for the second time? The answer is definitely no! As soon as a deal starts to heat-up, it is logged with compliance in the banks to avoid such situations. All the team members esp. on the M&A side (industry bankers are generally prohibited from investing in their clients) would be stopped from doing any trades in LZ. I am not suggesting that the banks have the best compliance procedures. All I am saying is that Mr. Sokol was either grossly ignorant or did cross the line willingly. I hope it is the former for us Berky shareholders.
Cheers,
Let us set aside the scope of inside information for a moment.
The services of Citi were/will be paid for by Berkshire or subsidiaries. Sokol used the services to gain personal benefit. Obviously we are not talking about taking a pencil from the office supply room to write a personal letter. Contrast this against the behavior of the exemplars like WEB who reimburses BRK for personal travel on company jet and personal phone calls.
CTM's situation, put in this context, becomes very different. CTM didn't first hire an investment banker on behalf of BRK to short-list BYD. He did his due diligence either by himself or as speculated, through his associate, Li Liu. Then he took the idea to WEB/BRK. It passes all standards of conduct.
To put in context, here are some of CTM's quotes about Sokol's type of rationalisation
""I'm used to people with very high IQs knowing how to recognize reality, but there's a huge human tendency where it may be instructive to think that whatever you're doing to succeed is all right. These people say to themselves: I need it and I want it, therefore I must have it....."
"My favorite human misjudgment is self-serving bias: how the brain subconsciously will decide that what’s good for the holder of the brain is good for everyone else. If the little me wants it, why shouldn’t the little me have it? People go through life like this. I’ve underestimated this phenomenon all my life. People go bonkers taking care of their own self-interest."
- both quotes taken from http://mungerisms.blogspot.com/ (lines in bold for emphasis)
Secondly, when Sokol approaches Citi or any other IB and ask for a short list for acquisitions, he is holding himself out as an agent for BRK and subsidiaries. According to the English law, he is an agent by "holding out". I don't know if this particular English law is taken cognizance in the US jurisdiction or not. Applying it as a minimum standard of conduct, Sokol has "a duty to avoid conflict of interest between the interests of the principal and his own (that is, the agent cannot engage in conduct where stands to gain a benefit for himself to the detriment of the principal)." (http://en.wikipedia.org/wiki/Law_of_agency).
Since the service is paid for by BRK/subsidiaries, arguably there is detriment to the principal (BRK/subsidiaries).
Sokol should be out, no question about it. Whether WEB should have given a pat on the back on the way out or should have thrown him under the bus is really a question of culture. I could see a lot of other managements doing that; but not WEB. The press release makes adequate disclosure for informed shareholders to come to their own conclusions. (as we are in the course of doing here) That is all the fiduciary duty WEB owes. Whether there is insider trading or not, is not a matter that he need decide (I guess, this issue goes to the "too tough" pile). He has disclosed the holdings which he can reasonably expect to set off a process in motion to investigate a case for insider trading.
Like I commented earlier, happy for WEB that Sokol is out.
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My end assessment is I am happy for WEB. He wouldn't have wanted someone who worked for money than the fun of the job anyway.
I just read Petey's earlier comment about CNBC asking questions about constellation and all - my last comment was before I read that.
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For those who disagree (and they may very well turn out to be right, as a matter of fact I hope they are) just out of curiosity, why is this not insider trading?
I think for this to be insider trading, Sokol needs to have material non-public information and needs to act with the intent of profiting from that information. He needs to have been told by Warren that BRK is considering an offer. It's not enough that he spotted the value before Buffett did, invested, and then told Buffett. That's an ethical issue, not a legal issue.
I believe an investigation would reveal that Sokol passes dozens of recommendations to Buffett and no action is taken. Therefore, just because Sokol will be making the recommendation that BRK acquire Lubrizol, doesn't mean that it will happen. In fact, the probability is quite low based on Sokol's 19/20 rejection rate metric.
Where I think it would be insider trading is if Sokol has a history of buying shares in a company, making a recommendation, and then dumping them if Buffett passes on the reco. In this scenario, Sokol's intent appears to make excess profits through BRK's actions.
If it is part of a pattern, then LUZ is definitely excusable. I would be interested to know if Sokol did the same thing with say, BNSF or other acquisitions in the past or other rejected acquisitions.
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This is like watching Star Wars - Revenge of the Sith and hearing Obi-Wan Kenobi said, "But you are the Chosen One, Anakin!"
Very sad to see it happen to a talented guy like Sokol... I wish him well at Middleburg and philanthropy.
Ronald Barusch has an excellent analysis of the legality, corp governance aspects.
http://blogs.wsj.com/deals/2011/03/30/dealpolitik-has-warren-buffett-lost-his-way/?mod=yahoo_hs
Ethically and morally, it looks bad. I don't get Sokol's thinking behind it at all. If I were him, I would have run it by Munger.
The reasons mentioned in the letter make sense about Middleburg fin. stake though.
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Hamburgers in India!!!! Teenagers and youth are crazy about McDonalds there. About five years ago, I flew from DC to Delhi to see a prospective bride and all she wanted to do was take me to a McD (as she called it). (Please don't ask me about the outcome of that visit - rejection sucks in any language). It has in fact gotten better these days.
These days even a B city like Kochi has at least a subway and a few pizza delivery places.
Bottom line, burgers are no big deal.
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I know that Charlie is a very smart, very shrewd man while I'm just a plain ole dummy.
A couple of thoughts on his sit down with QUICK BECKY in Michigan, however.
When he quit claimed for all to hear that, "Politicians are never so bad you don't live to want them back," all while amusing himself in the chair with that fine Charlie smirk, the whole audience including Becky went silent, not fully understanding if he was having a senior moment or they were dummies like me! ???
As for the real Munger's analogies being in support of the fake Munger's "DEFLATION" argument, I will offer this based upon him referencing his once rich uncle. That architect was making 8K per year during the roaring twenties-quite a nice sum!-and then got denigrated to a little more than 1K per year by uprooting himself to Los Angeles.
As Charlie so eloquently pointed out though, that wasn't so bad because he could still live so cheap compared to his paltry wage base. He had some damn disposable income to be "creative" with. Those savings were a partial "margin of safety" from a psychological stand point after and during the country's financial devastation.
Well, as if Charlie didn't know it when telling those poor Youngins who he was so eager to teach, to TOUGH IT OUT while their educational costs in excess of 50K per year before INTEREST, and few job prospects because of capitalists like him and his Chinese partner, LI, rolling up opportunities far away from them where DIRT CHEAP LABOR PREVAILS, even while the same "INFLATION BEAST" tied to their educational liabilities, which he has told his shareholders in their private settings were so damn good to them over the years, won't give them BREATHING ROOM or excess savings beyond paying their food and rent costs partially tied to criminal banks preventing a 70 year old PONZI SCHEME in the housing market to POP so that they could be given the "LIBERTY" for their creative, entrepreneurial juices to flow again.
When you're a FAT cat, sitting high on your TREE ready to pounce down on the little canaries all around you for LUNCH, it's fairly easy to tell people to "tough it out," don't worry and don't have "ENVY" in your hearts.
Charlie talks about a party, as though he's Republican or something. Truth is, I heard Charlie say that if the Chinese rule the world because they're wired to do so, he's fine with that. If the Li's usurp the Munger's, so be it, according to him.
Did his hero, Benjamin Franklin, care about the long term welfare of his own country and citizen base unlike Charlie?
I know Ben liked the printing press, and even had one in his basement. Charlie and Warren, on the other hand, have figured out how to exploit the stupidity behind the "SCOUNDRELS" running those presses on behalf of their own GOVERNMENT IDIOTS, however.
Charlie, Charlie, Charlie! What was the story with "ILLEGAL NAKED SHORT SELLING" again? >:(
"At any given time the current politicians are never so bad that if you live long you won't want to see them come back and replace the current crew. " is what Charlie was trying to say I think.
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There is an edition of "Securities Analysis" which created a controversy when Buffett was called to testify about it in the courts, I believe it was during the 1950's, when he told the person "quoting" the book, that he was mistaken about the assumptions because Warren knew, a revision from the original message had taken place. It was either #2(1940) or #3(1951), which was revised, versus #1, which was written in 1934 post Great Depression(1) by Graham/Dodd. I also believe the court dispute had brought Buffett all the way to the halls of Congress based upon my recollection of same.
Since so much time has passed, I am not sure if I absorbed this data from Janet Lowe's biography of Ben Graham, or some other work she did tied to Warren Buffett. I recall debating with certain anonymous posters in other venues some years back surrounding this same issue, while they refused to believe me. I am still not sure if this was a conspiracy or not! ;D
If the board police see it this way, please self-destruct this message forthwith!
Either way, price is what you pay, value is what you get. I would think the edition of IV, with Warren having written the preface might hold some decent value going forward also. imo
ValueCarl - There is a mention of this incident in Andrew Kilpatrick's OPV. Could it be from there? That's the first place I remember seeing this incident reported. (Mine is 2006 edition).
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Hi,
Just out of curiosity, does any one have the old BRK meeting notes from the 80s/early 90s. Just wondering as I'm planning to do some research and thought it might be helpful to read those.If anyone has a copy, would it be possible to kindly email a copy (ageofprophet@gmail.com)? Appreciate any help here.
Best,
ageofsocrates
Outstanding Investors Digest has some good coverage from late 80s and 90s in their website.
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On November 3, 2009, Berkshire also announced that its Board of Directors approved a 50-for-1 split of its Class B Common Stock. The stock split is subject to the approval of Berkshire’s shareholders who must approve an amendment to Berkshire’s certificate of incorporation to increase Berkshire’s total number of authorized shares of common stock. Berkshire’s Class A Common Stock is not being split. - 10Q (Page 2120)
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I just posted my notes from Wesco at seshnath.blogspot.com.
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Michael Lewis was one of the speakers at the CFA Conference this year at Orlando. This was my first time listening to him in person - his biases came out in the open while discussing the current economic situation and political solutions. (I guess, it may be due to the absence of someone to edit the words). Having said that, I am looking forward to his next book that he plans to write on AIG.
As an end note - did anyone see the "AIG, I quit" letter from one of the AIG-FP employees - I believe it was in International Herald Tribune? It seems, Lewis had a role to play in publishing it.
- Nathan
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I just posted my notes at
http seshnath dot blogspot dot com
- Nathan
Munger speaking at Ross School of Business (Video)
in Berkshire Hathaway
Posted
I recently finished reading FTWtF. I highly recommend it. Personally, it clarified the Chinese government and mindset for me more than any other book I have ever read.