Although some may disagree with awarding it to Warren Bufffett, I think it is an appropriate choice. If America represents capitalism, it is only fitting the greatest capitalist of modern times, Warren Buffett, receive the highest civilian honour bestowed by the US government.
Moving on to unrelated matters...
In Defense of Government
In an opinion piece for The New York Times today, Warren Buffett defended the actions of the government during the financial crisis a few years ago. Here is an excerpt:
DEAR Uncle Sam,
My mother told me to send thank-you notes promptly. I’ve been remiss.
Let me remind you why I’m writing. Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world’s most famous insurer, was at death’s door.
Many of our largest industrial companies, dependent on commercial paper financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, Berkshire Hathaway, might have been the last to fall, but that distinction provided little solace.
Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, 401(k)’s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.
Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm....
Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.
I don’t know precisely how you orchestrated these. But I did have a pretty good seat as events unfolded, and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair grasped the gravity of the situation and acted with courage and dispatch. And though I never voted for George W. Bush, I give him great credit for leading, even as Congress postured and squabbled.
You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently, for not battling the rot building up in the housing market. But then few of your critics saw matters clearly either. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly...
I have no idea why Buffett wrote this article at this point in time—Buffett is smart and always has a reason for everything—but my wild guess is that this piece is to defend the government against attacks by Congress and some prominent public individuals. There has been some public criticism of the Federal Reserve in the last week, including suggestions to strip the quasi-independency of the central bank and bring it more under the power of Congress. I hope this never succeeds. Many conservatives, as well as prominent investors like Jim Chanos and Seth Klarman, appear to be critical of the Federal Reserve; while many liberals, including individuals such as Paul Krugman, is supportive of the Federal Reserve. Even some hardcore conservatives like John Mauldin, who are skeptical of Quantitative Easing II, are against the attempts by Congress to strip some power from the Federal Reserve.
I am against trying to strip the Federal Reserve of its power. One of the promoted strategies of changing the mandate of the FedRes of battling inflation and unemployment, to just inflation, seems misguided. Although I think the US government did the right thing in the 1930's/1940's of literally "taking over" the Federal Reserve, I don't that would be the right decision today.
Todd Combs, Who Knew Ye?
I haven't commented on the recent hire by Berkshire Hathaway, Todd Combs. I am not familiar with hedge funds so I don't know anything about him (it appears others aren't familiar either). The pick is surprising but it is in line with the thinking of Warren Buffett and Charlie Munger. Todd Combs appears to have a strong record (unverified returns can be found here: set 1, set 2), albeit a very short one, but I think he got hired for his personality, knowledge future goals, and ethics, rather than anything to do with returns.
In the past, it has been suggested that 3 or 4 portfolio managers will be hired but I have a feeling that Todd Combs will be the most important investment manager of any that are hired. It is also likely that he will be the "main" capital allocator at Berkshire Hathaway (unless a superstar somehow joins the company). This is all pure speculation on my part but I say this because Combs appears to be an "insurance guy"—I believe he worked at a competitor to Geico and concentrates his investments in financial companies—and Berkshire Hathaway is still primarily an insurance company. Insurance exposure is also what can cause massive losses and destroy the company. My guess is that future hires will likely not have the same knowledge of insurance. However, my guess is that other portfolio managers will likely produce far higher returns than Todd Combs (I say this because I have a feeling financials are entering a long-term secular decline. The US economy, as well as most of the developed world, has likely "tapped out" when it comes to financial profits, financial services, financial employment, and so forth.)
Because the CEO role is being split—Buffett holds both, CEO and CIO—the company's daily operations will also be quite different in the future. The public face of Berkshire Hathaway will be the CEO, not Todd Combs or another portfolio manager. The annual shareholder meeting will also lose its popularity in the future.
The track record is way too short to say much but one big difference with Todd Combs is that he actually sells short quite a bit. I'm not much of an expert on Warren Buffett but I don't think he used short-selling as a key strategy. I think he did sell short in his hedge fund days but I can't recall much capital being allocated to short-selling since then. Unless you are really good or into macro investing, short-selling tends to be a losing strategy in the long run. Tags: Berkshire Hathaway (BRK.A), government, Jim Chanos, opinion, Seth Klarman, Todd Combs, Warren Buffett