Monday, September 27, 2010

Warren Buffet role model of Youn generation.

Personal life

Buffett married Susan Buffett née Thompson in 1952. They had three children, Susie, Howard, and Peter. The couple began living separately in 1977, although they remained married until her death in July 2004. Their daughter, Susie, lives in Omaha and does charitable work through the Susan A. Buffett Foundation and is a national board member of Girls, Inc. In 2006, on his seventy-sixth birthday, Warren married his never-married longtime-companion, Astrid Menks, who was then sixty years old. She had lived with him since his wife's departure in 1977 to San Francisco.[46] It was Susan Buffett who arranged for the two to meet before she left Omaha to pursue her singing career. All three were close and holiday cards to friends were signed "Warren, Susie and Astrid".[47] Susan Buffett briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett's personal life.[48]

His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in comparable companies.[49] In 2007, and 2008, he earned a total compensation of $175,000, which included a base salary of just $100,000.[50][51] He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, today valued at around $700,000 (although he also does have a $4 million home in Laguna Beach, California).[52] In 1989 after having spent nearly 10 million dollars[53] of Berkshire's funds on a private jet, Buffett sheepishly named it "The Indefensible". This act was a break from his past condemnation of extravagant purchases by other CEOs and his history of using more public transportation.[54]

He remains an avid player of the card game bridge, which he learned from Sharon Osberg, and plays with her and Bill Gates.[55] He spends twelve hours a week playing the game.[56] In 2006, he sponsored a bridge match for the Buffett Cup. Modeled on the Ryder Cup in golf, held immediately before it, and in the same city, a team of twelve bridge players from the United States took on twelve Europeans in the event.

He is a dedicated, lifelong follower of Nebraska football, and attends as many games as his schedule permits. He supported the hire of Bo Pelini following the 2007 season stating, "It was getting kind of desperate around here".[57] He watched the 2009 game against Oklahoma from the Nebraska sideline after being named an honorary assistant coach.[58]

Warren Buffett worked with Christopher Webber on an animated series with chief Andy Heyward, of DiC Entertainment, and then A Squared Entertainment. The series features Buffett and Munger, and teaches children healthy financial habits for life.[59][60]

Buffett was raised Presbyterian but has since described himself as agnostic [61] when it comes to religious beliefs. In December 2006 it was reported that Buffett does not carry a cell phone, does not have a computer at his desk, and drives his own automobile,[62] a Cadillac DTS.[63]

Buffett wears tailor-made suits from the Chinese label Trands; earlier he used to wear Ermenegildo Zegna.[64]

[edit] Lineage

Buffett's DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors most likely have roots in Iberia or Estonia.[65] On his mother's side he is a distant cousin of singer Harry Chapin[66] Despite widespread suggestions to the contrary, and the casual friendship which has developed between their families, Warren Buffett has no clear relation to the well-known singer Jimmy Buffett.

[edit] Recognition

In 1999, Buffett was named the top money manager of the twentieth century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton.[67] In 2007, he was listed among Time's 100 Most Influential People in the world.[68]

[edit] Politics

In addition to other political contributions over the years, Buffett has formally endorsed and made campaign contributions to Barack Obama's presidential campaign. Through a very distant ancestor, a seventh cousin three times removed, the two are related. On July 2, 2008, Buffett attended a $28,500 per plate fundraiser for Obama's campaign in Chicago hosted by Obama's National Finance Chair, Penny Pritzker and her husband, as well as Obama advisor Valerie Jarrett.[69] Buffett backed Obama for president, and intimated that John McCain's views on social justice were so far from his own that McCain would need a "lobotomy" for Buffett to change his endorsement.[70] During the second 2008 U.S. presidential debate, candidates John McCain and Barack Obama, after being asked first by presidential debate mediator Tom Brokaw, both mentioned Buffett as a possible future Secretary of the Treasury.[71] Later, in the third and final presidential debate, Obama mentioned Buffett as a potential economic advisor.[72] Buffett was also finance advisor to California Republican Governor Arnold Schwarzenegger during his 2003 election campaign.[73]

[edit] Writings

Warren Buffett's writings include his annual reports and various articles.

He warned about the pernicious effects of inflation:

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation.[74]

In his article The Superinvestors of Graham-and-Doddsville, Buffett refuted the academic Efficient-market hypothesis, that beating the S&P 500 was "pure chance", by highlighting a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Brown Inc.), Bill Ruane (Sequoia Fund, Inc.), Charles Munger (Buffett's own business partner at Berkshire), Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments).[75]

In his November, 1999 Fortune article, he warned of investors' unrealistic expectations:

Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like--anything like--they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate--repeat, aggregate--would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%.[76]

[edit] Wealth

In 2008 he was ranked by Forbes as the richest person in the world with an estimated net worth of approximately US$62 billion.[77] In 2009, after donating billions of dollars to charity, Buffett was ranked as the second richest man in the United States with a net worth of US$37 billion.[78][79] Only Bill Gates is currently ranked higher than Buffett.

[edit] Philanthropy

The following quotation from 1988, respectively, highlights Warren Buffett's thoughts on his wealth and why he long planned to re-allocate it:

I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die. (Lowe 1997:165–166)

From a NY Times article: "I don't believe in dynastic wealth", Warren Buffett said, calling those who grow up in wealthy circumstances "members of the lucky sperm club".[80] Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents:

A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.[81]

His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next.[82] Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".[83]

In 2006, he auctioned his 2001 Lincoln Town Car[84] on eBay to raise money for Girls, Inc.[85]

In 2007, he auctioned a luncheon with himself that raised a final bid of $650,100 for a charity.[86]

In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation.[87] In June 2006, Buffett gave approximately 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately US$30.7 billion as of 23 June 2006)[88] making it the largest charitable donation in history and Buffett one of the leaders in the philanthrocapitalism revolution.[89] The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation's investments.[90][91][citation needed]

This is a significant shift from previous statements Buffett has made, having stated that most of his fortune would pass to his Buffett Foundation.[92] The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.[93]

He also pledged $50-million to the Nuclear Threat Initiative, in Washington, where he has served as an adviser since 2002.[94]

On 27 June 2008, Zhao Danyang, a general manager at Pure Heart China Growth Investment Fund, won the 2008 5-day online "Power Lunch with Warren Buffett" charity auction with a bid of $2,110,100. Auction proceeds benefit the San Francisco Glide Foundation.[95][96]

[edit] Public positions

Buffett's speeches are known for mixing business discussions with humor. Each year, Buffett presides over Berkshire Hathaway's annual shareholder meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname "Woodstock of Capitalism".[97] Berkshire's annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett's writings are known for containing literary quotes ranging from the Bible to Mae West,[98] as well as Midwestern advice, and numerous jokes. Various websites extol Buffett's virtues while others decry Buffett’s business models or dismiss his investment advice and decisions.

[edit] Buffett and tobacco

During the RJR Nabisco, Inc. hostile takeover fight in 1987, Buffett was quoted as telling John Gutfreund:

I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.[99]

Speaking at Berkshire Hathaway Inc.'s 1994 annual meeting, Buffett said investments in tobacco are:

fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn't mean it has a bright future.[100]

[edit] Buffett and coal

In 2007, Buffett's PacifiCorp, a subsidiary of his MidAmerican Energy Company, canceled six proposed coal-fired power plants. These included Utah's Intermountain Power Project Unit 3, Jim Bridger Unit 5, and four proposed plants previously included in PacifiCorp's Integrated Resource Plan. The cancellations came in the wake of pressure from regulators and citizen groups, including a petition drive organized by Salt Lake City commercial real estate broker Alexander Lofft and directed at Buffett personally. The 1,600 petitioners, who described themselves in a letter to Buffett as "a collection of citizens, business owners and managers, service professionals, public servants, and organization representatives ... your friends and new customers here in Utah," explained that, in their view, any further expansion of coal generation in Utah would "compromise our health, obscure our viewsheds, shrink and contaminate our watersheds, and thin out our most beloved snow pack," concluding that "our attractiveness as a place to live and work is also threatened, and so is our economic competitiveness as a major metro area and a state, compromising our recent gains in income and property values".[101]

[edit] Klamath river

American Indian tribes and salmon fisherman sought to win support from Warren Buffett for a proposal to remove four hydroelectric dams from the Klamath River. He had David Sokol respond that the FERC would decide the question.[102][103]

[edit] Trade deficit

Buffett views the United States' expanding trade deficit as a trend that will devalue the US dollar and US assets. He believes that the US dollar will lose value in the long run, as a result of putting a larger portion of ownership of US assets in the hands of foreigners.

In his letter to shareholders in March, 2005, Warren Buffett predicted that in another ten years’ time the net ownership of the U.S. by outsiders would amount to $11 trillion.

Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in—and I’ll use hyperbole here for emphasis—a 'sharecropping society’.

Author Ann Pettifor has adopted the image in her writings and has stated: "He is right. And so the thing we must fear most now, is not just the collapse of banks and investment funds, or of the international financial architecture, but of a 'sharecropper society, angry at its downfall".[104]

[edit] Dollar and gold

This induced Buffett to enter the foreign currency market for the first time in 2002. However, he substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett continues to be bearish on the dollar, and says he is looking to make acquisitions of companies which derive a substantial portion of their revenues from outside the United States.

Buffett emphasized the non-productive aspect of a gold standard for the USD in 1998 at Harvard:

It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation:

stocks are probably still the best of all the poor alternatives in an era of inflation—at least they are if you buy in at appropriate prices.[105]

[edit] Taxes

Buffett stated that he only paid 19% of his income for 2006 ($48.1 million) in total federal taxes (due to them being from dividends & capital gains), while his employees paid 33% of theirs, despite making much less money.[106] On the other hand in 2008 Berkshire Hathaway paid $1.9 billion in federal corporate income taxes on $7.5 billion in earnings (more than 26% in federal taxes alone).[107] Buffett favors the inheritance tax, saying that repealing it would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics".[108] In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy.[109] Some critics have argued that Buffett (through Berkshire Hathaway) has a personal interest in the continuation of the estate tax, since Berkshire Hathaway has benefited from the estate tax in past business dealings and had developed and marketed insurance policies to protect policy holders against future estate tax payments.[110]

Buffett believes government should not be in the business of gambling, or legalizing casinos, calling it a tax on ignorance.[111]

[edit] Expensing of stock options

He has been a strong proponent of stock option expensing, on the Income Statement. At the 2004 annual meeting, he lambasted a bill before the United States Congress that would consider only some company-issued stock options compensation as an expense, likening the bill to one once passed by the Indiana House of Representatives that 'changed' Pi from 3.14159 to 3.2 .[112]

When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don't belong in the earnings statement, where in the world do they belong?[113]

[edit] Investment in China

Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary[114] on Berkshire Hathaway's website stating why he would not divest from the company despite calls from some activists to do so, due to its connection with the Sudanese genocide that caused Harvard to divest from the company in 2005. He did, however, sell this stake soon afterwards, sparing him the billions of dollars he would have lost had he held on to the company in the midst of the steep drop in oil prices beginning in the summer of 2008.

In October 2008, Buffett invested in new energy automobile business by paying $230 million for 10% of BYD Company(SEHK: 1211), which runs a subsidiary of electric automobile manufacturer BYD Auto. In less than one year, the investment has reaped him over 500% return of profit[115].