TCS Daily

Warren Buffett Hates Your Guts

By Andy Kessler - May 12, 2003 12:00 AM

The Oracle of Omaha is a great investor, no doubt, and has earned the right to speak his mind. And speak he does. So much so that it is increasingly clear that behind that homespun, good old boy, Cherry Coke drinking facade is a mean spirited dude. Don't kid yourself thinking otherwise. The guy is filthy rich. Forbes has him as the second richest man on the planet, but he doesn't want you or anyone else to get rich too. Want some proof?

Start with his high stock price. Buffett backed himself into an insurance company in textile mill clothing, Berkshire Hathaway. The stock trades on the New York Stock Exchange, notorious for higher trading costs than NASDAQ. But that's not my beef. The guy refuses to split his stock. It trades at $72,700 per share. That cuts off just about every small investor who might want to invest with the Buff-man. "You can watch what I do, but you can't come along for the ride." There are Class B shares, at a bargain price of $2,414 or 1/30th of the Class A shares. But the Class Bs really are second-class shares, with only 1/200th of the voting rights.

The Securities and Exchange Commission and the New York Attorney General have made major changes to Wall Street research in the name of the little guy, the retail investor I like to call Joe Six-Stock. But no Joe can afford to invest in even one share of Berkshire Hathaway. Thanks for nothing.

Buffett is also a big believer in limiting CEO pay. Buffy pays himself $100,000, about what a decent paralegal commands. When you work for Buffett, it is almost as a favor to him, because your pay is probably in the bottom 10% of corporate CEOs.

Well that's OK, Buffett no doubt wants these guys to manage like owners, and bestows stock options on CEOs and management teams. Well, not so fast, Warren considers stock options an expense on corporate income statements. They're not, but how dare I second-guess the great Oracle. The reason he is in favor of expensing stock options is (drum roll please): he doesn't give many of them out. He is rich, but no way are his managers going to get rich, unless they own his stock, which they would have to buy with their own money, which Buffett doesn't provide a lot of via pay.

So Buffett hates retail investors, and he hates CEOs, but perhaps, like me, you never plan on investing in or working for Berkshire Hathaway. He can't hurt us, can he? Well, Warren is a drag on the U.S. economy as well.

You see Berkshire Hathaway is a bit of a charade. Buffett owns a bunch of insurance companies. The way the insurance business works is you collect premiums from customers, insuring their automobiles or their health or companies against workman compensation claims. All claims against that insurance are somewhere in the future; hopefully, for Buffett, way out in the future. Buffett takes those premiums, and unlike most insurance companies that invest in fixed income securities like government or corporate bonds, Buffett invests in stocks. All he needs is for his stock investments to do better, against inflation, than the liabilities of future insurance claims.

Actually, Buffett ran into trouble a few years back when the workers compensation insurance business at his newly acquired General Re hit a wall. Reserves were inadequate to pay claims, and they soon ran up $6 billion in losses. Ouch. This killed Saul Steinberg's Reliance Insurance. Buffett, despite a cratering stock, slogged through it. He was fortunate that it happened in 1999-2000 during the Internet/telecom bubble as attention was focused elsewhere on Wall Street.

I'm not just picking on Buffett here, I think all insurance companies are a drain on the U.S. economy, taking valuable capital out of circulation for the risk of a "rainy day" and investing them in "low risk" securities. And unless you run a life insurance company (73 year old Buffett has a small one) you hope your customers die before they file claims for car crashes or cancer treatment.

The bigger problem for the U.S. is that Buffett invests in and promotes unproductive companies. See's Candy, Fruit of the Loom, Ben Bridge Jewelers, Star Furniture, RC Willey Home Furnishing, Dairy Queen and his old stakes in the Washington Post, Mickey D's, and Disney. C'mon, this is not exactly moving the economy forward, unless we want to emulate the Europeans. I doubt the word productivity has ever popped into Buffett's thinking. Intel and Cisco and Microsoft and Oracle (the company) and a post-industrial intellectual property economy is what is driving the U.S. today, not those low growth, cash spitting enterprises that keep Berkshire solvent.

Buffett is against relief of the double taxation of dividends. Berkshire doesn't pay a dividend, and I don't think it has for 40 years. Instead, by owning whole companies outright, Buffett just moves their cash flow around under the Berkshire umbrella to suit his needs. He has no need for dividends, so why should a bunch of old folks in Florida?

And even if you are rich, Buffett has a bone to pick with you (actually, your children). Along with lawyer-turned-richest-man-in-the-world-procreator Bill Gates Sr., Buffett is against an elimination of the inheritance tax. He wants everyone to reboot and start out life with very little money.

Buffett is also for population control, in some misplaced Malthusian nightmare. Thomas Malthus was the moron who noted in 1798 that population grows geometrically while crops only grow arithmetically and predicted that we would soon run out of food. Of course, he didn't understand productivity, but apparently either does Warren "Keep Your Legs Crossed" Buffett.

I really can't figure out this population control stance, except I have this nagging feeling that he doesn't want other people to be happy. Much of his $40 billion of net worth may go to helping other people not have children. I have four sons, who bring me more joy than any monetary success that Warren doesn't want me to have either.

The guy just really hates your guts, and probably mine now too.

Andy Kessler is a former Wall Street analyst, hedge fund manager and now author of the book Wall Street Meat: Jack Grubman, Frank Quattrone, Mary Meeker, Henry Blodget and me.

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