Buffett trumps S&P again after having lost his way for years

He’s returned to the Promised Land after wondering in the Wilderness.

Old economy stocks wot did it for him.

Advertisement

Q&A with Warren Buffett

He answers questions from MBA students. Worth a read. Some gd questions.

http://blogs.rhsmith.umd.edu/davidkass/uncategorized/warren-buffetts-qa-with-university-of-maryland-mba-students-march-11-2011/

Our SWFs: Learn from the Arabs?

Ahmad al-Sayed, chief executive of Qatar Holding, told the Financial Times that the acquisition of Harrods was part of a strategy to acquire “prestigious top-performing businesses and to buy them at the right point in the cycle”.

Qatar Holding is the primary vehicle for Qater’s strategic and direct investments. It is an arm of Qatar Investment Authority (QIA), which was founded in 2005 to strengthen its economy by diversifying into new asset classes.

Temasek’s investment strategy centres around four themes:

• Transforming Economies

– We invest in industry sectors that correlate with the economic transformation of the country

• Growing Middle Income Populations

– We find opportunities in companies and industries whose growth is fuelled by the increasing purchasing power of middle income populations

• Deepening Comparative Advantages

– We tap the potential of competitively-positioned companies

• Emerging Champions

– We identify companies proving to be best-in-class, be it regionally or globally.

GIC simply says, The group strives to achieve good long-term returns on assets under our management, to preserve and enhance Singapore’s reserves.

Note nothing about trying to time investments. Maybe thaz why they messed up big-time on Merrill Lynch, Citi and UBS. Even MM admitted that much saying they went into too early into financials.

Now Qatar’s  track record is not that great either: but at least it sets out a benchmark on which it can be judged.And it shows it is aware of the importance of timing.

BTW a lot of Buffett’s skill is in knowing when to be greedy.

GIC’s strategy is

Value investing: Ask the right question stupid

Those who consult Kwan Im and other deities, know that asking the right question is the key to a successful consultation.

Likewise in business, asking the correct question is the key to success. Google did, Yahoo didn’t.

In the mid-nineties, Yahoo! tried to figure this [what web search is] out by asking of every website “where does this belong?” They created categories, then had an actual live human look at each site and make a judgment, like a librarian. … But the web grew exponentially, and there weren’t exponentially more librarians for hire. Google beat Yahoo! by asking a different question: instead of “where does this belong”, they asked “who linked here?” A link became a proxy for a human decision; to link to something is to decide that it’s in some way relevant. Google reads links as human intent i.e. web search is an attempt to figure out what people want, not what librarians say where something belongs.

So in investing prior to and during the recent crisis, Buffett (“Is there value?”), Paulson (“Is sub-prime over-valued”) asked the right questions, GIC, Temasek and many others didn’t.

Value investing at its best

Buffett has a big stake in Goldman Sachs and the recent problems there had “experts” saying that he must have lost serious money. But no: the fall is gd for him, “Heads he wins, tails he still wins”.

FT reports:

In a surprising turn however, Mr Buffett, also explained that the travails at Goldman had been specific net positive for Berkshire, which bought $5bn of preferred shares paying a 10 per cent coupon at the heart of the credit crisis when Goldman was in need of additional funds.

Despite the roller coaster share price ride, Mr Buffett said that the headline challenges facing Goldman made it less likely that the bank would call its preferred shares. Those earn Berkshire almost $500m a year. If it the shares were called Berkshire would get $5.5bn back, but could only deposit that in low interest accounts earnings less than $20m a year.

“Every day that Goldman does not call our preferred is money in the bank,” Mr Buffett said. “Our preferred is paying $15 per second … so as we sit here… tick tick tick … its $15 in the bank. I don’t want those ticks to go away.”

If only the FTs, scholars and ex-SAF generals were quarter as gd, GIC and Temasek could make better returns, giving government more money to help the needy. They should realise, as FT’s Lex says, Funny how “once in a lifetime” opportunities roll around every few years or so.

Temasek: the significance of Seatown

Seatown is Temask’s new toy: an absolute return fund. But with a reported US$3 billion available for playing in the pen:in the context of Temasek’s reported US$120 billion in assets, and the world’s biggest hedgies http://hedgefundblogman.blogspot.com/2009/08/top-100-largest-hedge-funds.html, US$3 billion is”Peanuts,” as Mrs Goh Chok Tong might say. Seatown doesn’t even make it to list of 100 biggest hedgies: the smallest of which manages US$4 billion +

So what is Seatown’s significance?

Since Ho Ching became its CEO, Temasek has done a series of big deals, taking controlling or strategic stakes in high profile companies like Shin, Merrill Lynch, Barclays, ABC Learning, Bank of China, China Construction Bank , Hana, ICICI Bank, NIB Bank, PT Bank Danamon Indonesia, and Standard Chartered.

Some were real dogs, others were good performers, and the balance were average performers.% of those still in its portfolio.

But whatever they were, the size of the investments meant that they could not be done discreetly. When things went badly, S’poreans knew, and knew whom they blamed.

It could be that Temasek will slow down Buffett-size deals, using Seatown to do lots of smallish deals that will not appear on the radar, and depending on rapid turnover (i.e trading) to make $. And if Seatown comes a cropper, US$3 billion is a rounding error. But if it does well, financial engineering will magnify its returns: supposing if Temasek funds Seatown from the proceeds of its recent bond issues, the cost of the capital could be “peanuts”, leading to great returns when calculated using the cost of these bonds. Or so I’ve been advised by the same people who tell me that SingTel should have taken an impairment charge (at least A$3 billion) for Optus and SIA for Virgin Atlantic (sum unknown but sure to be in billions whether in US$ or sterling).  And no they are not members of SDP, they are accountants’ accountants.

Moral of the story: don’t do a Buffett, unless you got a brain to match. Scholars, SAF generals, or FTs from top biz schools do not a Buffett make.

Maybe Temasek thinks that a Soros or John Paulson can appear from one of these  scholars, SAF generals, or FTs from top biz schools, though based on the exit from BoA (that bought ML), “Dream on baby”. John Paulson was buying as Temasek was selling.

And maybe the Chinese can teach Singapore Inc something. FT reports: “China Investment Corp, Beijing’s sovereign wealth fund, has agreed to invest $1.5bn in the private equity secondary market through custom accounts with three of the biggest specialists in buying second-hand buy-out and venture capital fund interests.

‘Lexington Partners, Goldman Sachs and Pantheon Ventures have each agreed to manage $500m for CIC through special accounts, which are to be kept separate from their main funds … The move is the biggest injection of capital into the secondary market.”

“It underlines how CIC is using its size to win special terms from private equity groups, including lower fees and transfer of knowledge on specialist markets … The era of big public pension funds and sovereign wealth funds accepting the same terms as smaller investors is over,” David Rubenstein, founder of the Carlyle Group, said.”

Outsource to the best, using wagga to get good terms.

But then the S’pore govmin is as mercantilist as the French.

Temasek taking leaf from Buffett?

When Temasek and GIC first bought big stakes in Merrill Lynch and Citi respectively, some analysts (self-included) were wondering where was Warren Buffett? Surely these banks would have tried him first? And if he passed, what did it mean? Was he giving banks a miss because they were offering him bad terms (he has a reputation of demanding and getting great terms: Goldman Sachs is a gd example) or did he have other issues?

Since then the world has witnesses the deaths of Lehman and AIG, and a shakeup in the financial industry. And Buffett buying.

Not only that, but he  is borrowing half of the $16 billion in cash Berkshire plans to use for the Burlington deal, his latest.

So it is interesting to note that Temasek  returned to the bond market for the second time this year to raise US$500 million ($692 million) via a 30-year issue.  This issue  follows a US$1.5 billion 10-year bond in October and a US$1.75 billion 10-year paper in Sept 2005.

After the latest deal, US$1.25 billion remains untapped of Temasek’s US$5 billion medium-term note program.