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The Ethical Hypocrisy of Warren Buffett?

August 31, 2014 | About:
njs80

njs80

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I have been an avid reader of the articles on this site for over a year. I too am a Warren Buffett (Trades, Portfolio) devotee; not simply an admirer of his investment prowess, but also his moral backbone and old school ethics in an industry where money seems to be the only consideration.

I live in New Zealand so I may be a little out of touch with America's markets. However, I invest in America, I follow American companies and its economy because it appeals to me. The reason why I write my first article on this site is simply to enjoy the opinions of greater minds on this subject. Is it possible that Buffett has not always been consistent with the eithical standards he has preached?

I am currently reading Michael Lewis' book, Liars Poker which follows the fate of former investment bank Solomon Brothers. Most of you would know that Buffett invested $700M in Solomon in 1987. Curious about the investment I did a little digging. Why would Buffett want to invest in the type of company and culture he openly deplored? Why would he praise the integrity of a man like John Gutfreund who presided over this highly speculative and sometimes illegal trading at Solomon Brothers?

Is this slightly hypocritical behaviour from Buffett simply because he was offered a good deal in purchasing 9% preferreds that were convertable at $38 (the market price of the common stock being $30 at the time of purchase? The sizeable investment that Buffett made in Solomon meant that Berkshire became its largest shareholder, holding 12% of the shares outstanding.

Indeed, after the scandal had passed and Buffett converted his preferreds, the investment turned out to be a successful one. However, this begs the question of when there is a great deal available, does Buffett set aside his well published beliefs about not working with people who make your stomach churn, or investing in companies with good honest management.

Then there was Buffett's investment in Goldman Sachs in 2008. This again, has turned out to be a successful investment for Berkshire. But what about dealing with a guy like Lloyd Blankfein - a man who could not seem to see the conflict of interest when his firm was betting against the same securities it was peddling to its customers prior to the GFC. The senate investigation into the GFC where senator Carl Levin questions Blankfein is interesting watching. To me he seems like a man who is taking no responsibility and will not admit the most basic fact that the bank owes a fiduciary duty to its client.

Do these investments strike you as Buffettesque in nature? Yes they were succesful financially but they don't seem to marry up with our perception of Buffett based on his writings.

In researching Buffett's investment in Solomon, I found this article which funnily enough is written by Michael Lewis and asks the question of whether the Buffett we see in interviews and which comes through in his writngs is consistent with his actions.

http://www.newrepublic.com/article/politics/the-temptation-st-warren

I am interested to know your thoughts.


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Comments

Discoveror
Discoveror - 1 month ago

I wondered similarly when reading the annual reports.

To the lefty media he proclaims that he ought to have to pay a higher tax rate than his secretary, while employing a battery of tax accountants to churn out I forget how many hundreds of pages of tax returns to avoid/evade paying taxes.

To the media he espouses ecology while being against the pipeline which would create thousands of jobs (for our economy, flailing under the 'leader' he backs) and transport energy more safely than his train set (BNSF) which generates mountains of 'float' deferred taxes.

Does he 'walk the talk' ? As they say in the auto industry, 'Money talks ... and b.s. walks.'

batbeer2
Batbeer2 premium member - 1 month ago

Hi Discoverer,

you say:

>> To the lefty media he proclaims that he ought to have to pay a higher tax rate than his secretary, while employing a battery of tax accountants to churn out I forget how many hundreds of pages of tax returns to avoid/evade paying taxes.

I believe you are probably confused and certainly mistaken.

Confused:

If Buffett says he ought to pay a higher tax rate then he's talking about his $200k annual personal income; he's entitled to his opinion.

When he is minimizing the tax rate of Berkshire (as he did recently with the WPO/BRK share swap), he is acting in the best interest of Berkshire's shareholders. Those shareholders may or may not share his political views but they can rest assured that Berkshire's CEO acts in their best interest regardless of his personal political views.

Now that's the sort of integrity I rarely see.

Mistaken:

In the US artillery, a towed howitzer battery typically has six guns, whereas a self-propelled battery (such as an M 109 battery) has eight.

You will be unable to prove your statement that Berkshire employs a battery of tax accountants mainly because that's just not the case.

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