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jeff mathews 10 questions for web at brk annual meeting


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doug kass links to these 10 questions for buffett at matthews "i'm not making this up" blog. personally, i find most of the questions posed range from lame to outright accusatory. what's more, i think the anwers are either fairly self-evident to most careful readers of brk's annual reports & transcripts of meetings & interviews, or they have already been addressed by web before via same.




"The Top Ten Questions We’d Like to Hear at the Berkshire Annual Meeting


#1 To what extent does Berkshire's reinsurance business rely on Ajit Jain and is there currently another individual in the division capable of replacing Mr. Jain?


#2 Why not either sell the Moody’s position entirely since the franchise value and moat are severely and possibly permanently impaired (redeploying capital into more attractive investments that no doubt exist); or buy Moody’s entirely and use the Buffett/Berkshire reputation to entirely revamp Moody’s into a highly valuable business again? Berkshire may be one of the only franchises that could install the integrity needed to turn around the ratings agencies.


#3 Washington Post went from being a local paper to a national paper to a learning company. Wells Fargo went from being a conservative bank to a highly leveraged mortgage lender. Moody's went from being a boring ratings agency to a co-conspirator in the mortgage bubble. How do you justify holding stocks “forever” when the original investment eventually becomes unrecognizable in most cases?


#4 You said in your letter the United States' best days lie ahead of it. Upon what do you base that statement: economic data, natural optimism, political pressure, or wishful thinking?


#5 Isn't there significantly more risk than what you are suggesting in your sale of long-dated index puts? If one had sold puts on the Dow from 1927 to 1929 (during the run up, a period similar to when Berkshire sold their options), 15 years later, the market was down from an average of say 300 on the DJIA to approximately 140 a loss of a little over 50%. And if one had reinvested the premium in the market, one would have lost 50% of that. So the cheap financing ( less than 1%) does not end up being cheap. Finally, isn't there a risk of doubling down on the stock market as most of Berkshire's business returns are tied to returns in the stock market?


#6 You’ve written See’s Candies’ beauty rests in the minimal incremental tangible capital required to grow profits. Recently, you’ve expressed excitement for Berkshire’s investments in utilities, insurance and railroads – capital intensive industries potentially facing massive inflation. Can you reconcile these contrasting viewpoints?


#7 What factors, if any, would cause you to change your favorite holding period from “forever” to “sometime in the future” when thinking about the challenges your businesses face?


#8 On Conoco, it seems Berkshire made the uncharacteristic move of buying an asset with a price chart that went straight up, rather straight down. Please explain the decision making process on Conoco and what you learned from this admitted mistake.


#9 Being a major shareholder in Moody's, why didn't Mr. Buffett play a more active role in urging Moody's to change its rating process and save it from disrepute?


#10 How do you sleep at night knowing you sacrificed Ron Furgeson [sic; it is spelled Ferguson] to avoid your own responsibility with the General Re/AIG crime?



Jeff Matthews

I Am Not Making This Up"




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Well, the stupidity of some of those questions becomes glaringly obvious once the reader realizes who the source is...Jeff Mathews?  C'mon!


On the other hand, there are a couple that are interesting:  #1, #6 & #9.  Number ten is probably the most assinine thing Mathews could ask, and about on par for him.  Cheers!



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I think you give this guy a little too much credit, all of those questions are bad because I'm pretty sure I've heard them all answered before. I'll give it a shot.

#1 Ajit Jain can't be replaced, oh be the world that gives me 50 years with Warren Buffett and then makes me settle for someone worse...type of answer. A great Ceo has the ability to make his managers feel important, I just don't see him saying "oh yea that guy can be replaced, no problem."  Berkshire will be doing reinsurance after everyone we recognize at the company is gone. 

#6  You can make money doing both, railroad business has changed (double staking, toll road etc),  regulated utilities ensure that we earn a fixed return on our investment.


#9 They don't tell management what to do, management didn't pass newspaper test etc. 




My #1 question would be, can we print our way out of a negative feedback cycle?






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While I think the tone of a few of those questions could be written in a less rhetorical way, for the most part (excluding Q10) I think they are interesting questions.  More importantly, they are much better questions than those typically asked at the annual shareholders' meeting.


And it should be noted that this Jeff Matthews fellow didn't come up with the questions himself, they were submitted and voted on by others.

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#2 is interesting.


The truth is that 'Moody's' as a brand name is tarnished, but its models for municipal and corporate credit risk are still valuable.  Its structured products ratings were the ones that failed, and they failed masterfully.  The discerning buyer should still be willing to pay for the valuable services that Moody's provides.  So there still is a valuable business there, with a tarnished nameplate.


Why not buy the whole thing?  Too expensive at these prices.  Without structured products, its annual FCF is below half a billion.  A couple weeks ago, I wrote an (admittedly simplistic) analysis on my blog that put their intrinsic value at ~$22 per share.



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While I am relatively agnostic wrt the questions, I do think that it is somewhat unfair to blame Matthews for them, especially the tone of #10.  In fact, reading the linked article reveals that he neither came up with the questions nor determined which ones were the 'top 10'.  In fact, he explicitly said that he does not endorse the tone of question #10:


"While the AIG affair is, nevertheless, a business issue, and worth asking about, Question 10 is phrased in a personal, accusatory fashion that I didn’t endorse. When the sender refused to restate it in a manner more likely to generate a response, it stayed as it was."


Anyway, just an observation.

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