Wednesday, February 2, 2011

Gary North on Warren Buffett

From his latest essay, When the Insiders Lose Control:

The symbol of this train wreck is Warren Buffett. His outfit bought newspapers. [I like how Gary North refers to Berkshire as "his outfit".] It owns a chunk of the Washington Post. He recently resigned from the board of the Post. But he assured people that he will never sell shares of the Post. A columnist on the Motley Fool had some comments on this statement. He quotes Buffett from two years ago.
Twenty to 40 years ago, [newspapers] were essential to customers and advertisers. They had pricing power, but [it] essentiality has eroded. Erosion accelerated dramatically, and it won't end based on anything on the horizon. We do not see anything to reverse it. They are essential to advertisers only as long as they're essential to readers. Ten years ago, the head of The Buffalo News said that on an economic basis, Berkshire should sell The Buffalo News. We could have sold the business for hundreds of millions. Not so today.
The writer went on to say that Buffett has always bought companies on this basis: he will not break them up. He buys to hold. I can see the logic of this. But that logic has trapped him. He owns big chunks of sinking ships made of newsprint.

The strategy of the Insiders has always been to control the flow of information. Because of the cost of entering the various fields, those without a lot of capital could not get in.
Mergers and acquisitions went on for 50 years until the Insiders controlled the whole shebang.
I have long thought that Buffett's biggest weakness is a lack of sell discipline. I have written about this in the context of our USG short:
There is no information content in a Buffett holding as opposed to a purchase, because he basically won't sell no matter how bad things get. Examples: Moody's (discredited by their mortgage security ratings), Washington Post and Gannett (dying industry), USG Corp (down hugely since most of his purchases, why hold through a housing crash?), General Electric (turned itself into a bank making risky commercial loans)
There are obviously things I like about Buffett, but I am a skeptic. I wonder whether there ever been a case where Buffett recognized a problem in an industry and completely sold his holdings or went short?

He is in the complacent, "rah-rah America" class of investors who think that because the baby boomers lived such pampered lives, misfortune has been permanently banished from history.

I think some of these deficits could stem from Buffett's mental models of America (and Goldman Sachs, and the newspaper industry) not incorporating the changes that have occurred since the 1950s.

Another name that I think Buffett will end up riding over the peak and all the way down into the ground (if he lives long enough) is Coca Cola. His enthusiasm for Coca Cola has always bothered me. What happens to Coca-Cola if more people switch to paleolithic diets? What happens if people get sick of its habit of filing amicus briefs in politically sensitive cases?


getyourselfconnected said...

Well, he did sell all his silver a long time ago......

CP said...

Ha, of all the things to sell!

Not Moody's, or WPO, or WFC but silver!