Tarnish on the Oracle of Omaha

The Sacramento Bee this morning reported about how Warren Buffett is making money out of TARP, several of his investments will make money by the bailout policies of the former and current administration. I wonder why the story is important.

Buffett has been one of the premier investors of our time. A good deal of his success has come from governmental policies. His investments include a lot of regulated industries (including insurance, banking, and utilities). Another part of his success has been conditioned on the tax policies relating to inheritance. Some of his best buys have been family owned businesses that faced the inordinate costs of taxes on inheritance. But he has also been a thoughtful investor - looking always for sound investment principles. Berkshire's manufactured housing investment is not in the soup in its financing arm because it did not loosen its standards for borrowers. (That is disclosed in his annual report which I read each year - although as an investor in the company since 1987 I have never been to his Annual Meeting). But some of his biggest failures including his ill-fated investment in US Air - were also in regulated industries.

Buffett's principles (and his partner Charles Munger too) go back to the wisdom of Benjamin Graham, the legendary professor at Columbia, who wrote two of the best books on investing ever - which have one simple principle - investments should be based on the underlying value of the company.Graham taught one generation of investors directly and a bunch more through his writing to recognize those principles.

I've been a bit concerned in recent years about Buffett's public pronouncements. In some cases, like his comments on tax policy, I found his ideas a bit self serving. But his vision for sound principles is not diminished. He called the fraud at Fannie Mae (where he was a big investor at one point) early. His annual report this year (available at Berkshire Hataway's Company Site includes a discussion of derivatives that points out both the benefits and risks of these instruments. He comes out for mark to market in this report - on his continuing quest for transparency. But during the S&L crisis both he and Munger pointed out the folly of both the industry and government policies. On balance, even with his press status, his insights could have helped economic policy makers make better decisions - even if he chose to use the knowledge of how financial institutions work to benefit his own investors. His career, since taking over Berkshire, has been to look at all types of investments - and the core has always been in financially related and regulated industries. His benefit from TARP is in no way conditioned on the size of his holdings, except that the company takes very large positions.

I am not sure why the Bee chose to report the obvious in their Sunday edition. But the larger picture is much more interesting.