Warren Buffet - Giving away his wealth

My last posting on Warren Buffet was on how he made his money. In this posting, I wish to share with you his well-thought way of giving away his wealth.

His Philosophy on Wealth and Distribution
Buffett has donated much of his wealth to the Gates Foundation ie. 85% of Berkshire stock, worth about $40 billion back in June 2006.

Why donates away most of his wealth?
As he states: "The idea of passing wealth from generation to generation so that hundreds of your descendants can command the resources of other people simply because they came from the right womb flies in the face of a meritocratic society."

Buffett believes that children should not inherit money just because of the lottery of their birth. He says children should be left "enough money so that they feel they could do anything, but not so much that they could do nothing."

How do he and the Gates want the Foundation to manage the money donated?
Objectives

• Together with Bill and Melinda Gates, the wealth will be used to try and fulfill shared goals of eradicating major diseases like malaria and HIV/AIDS in developing countries, and improving high school education standards in the U.S.
• The monies must all be spent over 20 years on health and education.

It is one of the few philanthropic donations where the money will run out relatively quickly, contrary to the self-interest of foundation bureaucracies to survive as long as they can. He does not want the managers of the Foundation to become big fat cats ie. to preserve their cushy jobs and thus holding back on putting the money to good use.

Buffett has not set up a foundation nor paid for buildings at hospitals or museums to try to perpetuate his name.

"Buffett's ideal was a world in which winners were free to strive, but narrowed the gap by helping the losers," writes Alice Schroeder.

Source - Alice Schroeder, Buffett: Rock Star of American Capitalism, Knowledge at Wharton

Do you still trust your bank and banker with your money?

I have just read an article on Business Times entitled "Restoring Trust in Financial Institutions" (FIs) reflecting the views of Mr Simon Newman, Managing Director, AVIVA Singapore.

To restore something means you must have lost it first and then looking to find and put it back. So have we the investing public lost trust in FIs? And the FIs are now trying to restore or regain the public's trust and confidence?

The collapse of structured products amid allegations of massive mis-selling by FIs and their commission-powered sales representatives was the main contributor to that loss of trust.

Can FIs regain that trust of the consumers by simply requiring them to print the sales brochures in all 4 languages (which of course, will be peppered with tons of disclaimers in all 4 languages) and to follow MAS-issued Guidelines on Fair Trading? Mr Newman said FIs need to go beyond merely fulfilling their legal obligations (yes, I agree), (but also) to truly engage consumers and meet their evolving needs in this challenging and volatile economic climate (blah, blah blah). Huh? Is this the panacea to people who have lost millions of dollars of life savings? Let me share with you a parallel example.

The travel industry too was generally in doldrum in the last few months due to the financial crisis. It was later compounded by the outbreak of H1N1. Many who have pre-booked their holidays wanted to cancel and seek refund. Some travel companies are ok to refund but with heavy penalty. The question here - what would you have done if you were running a travel agency?

An industry player opined the industry as a whole should have adopted the position to refund. Otherwise the consequence would be consumers would be more fearful of future early commitment (thus impairing your long term business viability) and prefer last minute self-arranged travels.

Bottomline - When self interest is the foundation of every party's action / decision, the debate will continue. Or given time, the pain will ease and trust will return.

Who is Warren Buffet?

He is the chief icon of Bershire Hathaway. About 30 years ago, Buffett spent $15.4 million to buy 46% of Berkshire (a textile entity) including 3% for his wife Susan, paying an average $32.45 per share. With Berkshire shares recently traded around $87,200, Buffett has grown his wealth nearly 3,000-fold in some 30 years.

How did he do it?
Technically, he learned this massive capital accumulation discipline from Benjamin Graham, investment GURU of Columbia University in 1951.

Buffett's approach to investment involves using seventh grade math and common sense to analyze a company's underlying economics ie.

1. “buying a business not a stock”,
2. “ignoring the fluctuations of the stock market”; and,
3. most importantly, Graham’s main principle “maintaining a margin of safety.”

In frothy bull markets, Buffett is fearful while others are greedy, taking profits on some holdings and piling up the cash generated by businesses. Example - Berkshire sold its stake in PetroChina for $4 billion in 2007 amid rapidly rising oil prices and the craze for investing in emerging markets, having bought it in 2002 and 2003 for $488 million.

Then, during severe stock market or industry declines, he is greedy when others are fearful, buying good businesses at attractive prices. Example - Berkshire secured favourable terms in deals with Goldman Sachs and General Electric during last year's stock market panic.

Buffett's three rules of portfolio management are:-
1. Don't lose money;
2. Don't forget rule one and;
3. Don't go into debt.

Buffet’s personal traits required do the job:-

• His focus,
• an intellect which is a perpetual learning machine,
• rationality,
• an ambition from childhood to become rich,
• family is secondary,
• he attracts talented people to work, partner and deal with him due to his honesty, fairness, letting them do their job without interference and crediting them for success and;
• he freely acknowledges making several errors.

Source - Alice Schroeder, Buffett: Rock Star of American Capitalism, Knowledge at Wharton

Creative Technology - Can see any light yet?

Creative Technology reported a net loss of USD$14 million for its fourth quarter ended June 2009, including a provision of US$12.8 million for potentially unrecoverable loans due from a former subsidiary, compared with a net profit of USD$116.2 million a year ago.

Total loss in FY2009 is USD$137.9 million, compared with net profit of USD$128.2 million in FY2008. The previous year's profit was mainly due to a gain of USD$147.9 million from the sale of Creative's headquarter office and restructuring charges of USD$11.2 million.

I am sure its management knows that it is in need of new ideas that are sustainable. There was a rumour that there could be some sort of a tie up with THX. Whatever it is, the lifeline has to come really soon. Otherwise, the only card left is new Zii platform.

I don't know what it is but I hope for the sake of Singapore's entrepreneurial spirit and Mr Sim's good spirit, the company would turn black soon.

SGX welcomes new CEO

Magnus Bocker is replacing Hsieh Fu Hua as chief executive officer of the Singapore Exchange (SGX), the company announced last night.

His profile highlights his fantastic track record in business development ie. putting together small bourses and finally selling the consolidated entity to a big boy. This is in addition to the fact he took his wife's name. (I cannot understand the need for that.)

Anyway back to my intention of this blog piece.. I would like to raise the question as to his competence in the area of control, maintenance, supervisory roles of a stock exchange.

We certainly need a SGX that would play an even hand to its shareholders and yet market friendly to the listed companies and big and small investors (hopefully not always in this order of preference).

Mr Goodyear, gone So soon?

I just read that Singapore's Temasek Holdings Mr Charles (Chip) Goodyear, the CEO designate, has decided not to become the chief executive of the state investment firm. Reason? Due to differences on certain strategic issues that could not be resolved.

Mr Goodyear had been appointed a member of the Temasek board on February 1, 2009 and CEO-designate, a month later. He resigned on July 21, 2009.

Too short a burn-in period for the candidate to adapt to the economic and political culture and structure of Singapore? Well isn't the candidate supposed to have been selected after an extensive and intensive search for such a high profile and important position ie. managing the wealth of a nation earned with blood and sweat over two or three generations? Or perhaps the portfolio that is supposed to be taken over way too "complex" to digest ie. handover?

Whatever it is - All the bests to you, Mr Goodyear. Perhaps it is just not meant to be.

C K Tang - The Valuation Report

ion's valuation - the minority hope to have?

A group of 10 shareholders of CK Tang signed, sealed and delivered a petition to the Singapore Exchange and the Ministry of Finance to protect the interest of the minority shareholders against 89%-majority Tang family's plans to take the company private.

Their main grievance - They are claiming that the flagship 5-storey store (I think, including the basement), which is part of a huge hotel that C K Tang (the listed company) does not own, has been undervalued because the company has not taken redevelopment potential into account.

There are many ways to value an asset. Thus I would be very interested to know how was the valuation done.

How to satisfy the minority shareholders? Based on what I read in the papers today, there are two options.
* Justify your current offer of 83 cents with a vigorously and comprehensively analysed valuation report done by completely independent and competent property professionals, free from any undue influence or opinion from C K Tang's management OR;
* make an offer that at least matches CK Tang's net tangible assets of 93 cents per share as per financial statements dated March 31, 2009 - 10 cents higher than the current offer price of 83 cents.

Will the minority get their report or their money?

P/S - I got no C K Tang shares.

C K Tang - U know how to do retail business?

ion across tang

Hi Management of C K Tang,

I saw the news today. You have reported ANOTHER $5.62 million loss for the year ended 31 Mar 2009. The loss was more than double the $2.19 million net loss a year ago.

The recent loss is due to the following:-

1. stock writeoff - $7.8 millions
2. marketing-related expenses up 8.2% to $21.9 millions
3. operating expenses up to $25.7 millions
4. depreciation expenses also up by 13% despite relaxing the useful life of some assets from 6 years to 10 years
5. Sales how? Only up a miserable 3% to $238 millions

The family - which owns 86.61 per cent of the company - has COINCIDENTALLY offered to buy the remaining shares it does not own at 83 cents per share through a delisting proposal a few weeks before the annoucement of this set of results.

Why do you want to buy over a money losing business year after year? Here are my speculative bits:-

• "Edgar, you are so stupid... it is not retail business that they are after. They are after the last piece of C K Tang building!!!!"
• "Ion, the building across C K Tang, must have aroused their interest."
• "Or is the buying back of shares, an expensive exercise to avoid listening to people like me and the public from querying their retail business management ability."

Why the need for USD$3 billions loss?

ion still in the making

It is reported in various papers today that "Temasek Holdings has cut its losses on Bank of America (BOA). The Singapore investment agency has sold its 3 per cent stake in the bank, resulting in a loss of about US$3 billion as it renews its focus back home and on the region."

Question - Why the need for Temasek to sell down and realised a loss of such a magnitude?

First thing first, you make decision on the merits of individual investment. When you are not short of funds, you don't have to sell before you buy again. You cannot justify the sale and subsequent loss of that magnitude by telling the world that you are "tweaking your portfolio and refocusing back to the region". This is pure crap.

Secondly, it is obvious that the information available to Temasek's management, ie. prior to its decision to systematicly selldown all its Bank of America's stake in Q1 2009, have painted a pessismistic picture of US economy and its banking sector in near term and thus prompted their decision to sell and not wait. They obviously do not believe that BOA's share price would not be any better to mitigate the loss. Recovery is obviously not in sight.

Didn't Temasek's management get any indication from its sources that the global equity markets would run from early May? Or is the current bull run in May an illusion? Or Temasek may be telling us something we don't know or we refuse to believe given the current bull run.

Has Temasek made another "boo boo" by selling too early? Or Temasek may have taken a wise, informed, preventive action to avoid greater future losses?

Only time will tell.

C K Tang - Deja Vu again?

Proposal
Tang brothers, now called themselves, Tang UnityThree LLP, are offering to buy all shares they do not own at 83cts. (They offered 65cts per share back in Dec 2006)

Background
This is the 3rd effort to privatise the company.
First time was Oct 2003 at the then offer price of 42cts was voted down.
Second time was in Dec 2006 when they offered 65cts.

Question
Still the same question - Is the current price a fair offer for a stake in a very very very prime real estate albeit in a competitive retail business and rapidly improving hotel business? Why the Tangs want to buy back the shares so badly? What does C K Tang actually own?

If the shareholders had accepted the offer in 2003, a shareholder would have missed on about 7.86% per annum rate of capital appreciation.

Read my previous posting on sum of parts could be worth a lot more.

P/S - I have no C K Tang shares as of today.

Ponzi and US Treasury Bills?

News Bite 1
Even the most sophisticated investors put their faith in Bernard Madoff, the New York City financier recently accused of running a $50 billion Ponzi scheme. That breach of trust has damaged the broader markets, Professors Maurice E. Schweitzer and G. Richard Shell say.

News Bite 2
Obama signed off on the record breaking budget.

News Bite 3
Hillary Clinton visited Japan and China in her maiden trip overseas as the new Secretary of State.

Piecing all these events together, I would speculate as follows:-
The US budget deficit needs to be financed by some real US money as the printers are already working overtime trying to meet the delivery to 3 US car manufacturers after doing the AIA's order.

Where to find the real existing US dollars? Oh yes.. the Chinese and the Japanese have plenty of them. So Obama asked Hillary to go borrow some zillions from them in her maiden trip.

If the zillions don't turn up soon, the US government could be accused of doing the next Ponzi thingy with trillions of Treasury bills waiting for their promised interest and redemption?

Never say never. Well at this moment, the above is just Edgar's fertile imagination at work.

Two Singapore icons

Could the two Singapore corporate icons be around at the end of this financial storm?

At this rate that they are going, I really don't think so.

One is a retailer (a premium one, it called itself) selling health-related equipment that other people make and had tried to play the M&A game with the Americans using mostly other people's monies. In yesterday's BT, the last of few hundred millions invested in that foreign land has been erased from its balance sheet.

The other has lost its way since its signature sound card. The company is burning away the USD$100mio won from Apple a few years ago trying to produce and sell products that the whole world knows how to make. After closing down its online initiative, they have just closed down their retail initiative. Sold and lease back their HQ. Sold their online music store.

Come on, guys. Are you running out of ideas? The market will punish harshly!

Are managed funds any good?

Are active fees actually yielding any outperformance, let alone absolute returns? A question asked in BT dated Feb 12, 2009.

Based on public data, for a 3-year period to end January, Asia ex-Japan funds:-

• Asia ex-Japan funds lost negative 9% on an annualised basis, compared to
• negative 11% by the MSCI Asia ex- Japan index.

Over a 5-year period,

• the funds lost one per cent on an annualised basis, compared to
• the index loss of 0.13%.

Over 10 years,
the funds' record shows an annualised return of 3.49% among funds, against
2.66% for the index.

Based on the above numbers ==> the index has beaten the fund managers in 2 of 3 categories.

Have you started your soul-searching over the value of active management ie. are the fund managers any good? I have. If you refer to my earlier posting, I am concluding just that. I can't PERSISTENTLY beat the market in the long run.

I won't be surprised that high networth clients are preparing to show fund managers / private bankers the door, replacing their allocations with no-frills index funds.

Should part of sovereign wealth of a nation be in no-frills index funds too?

Temasek portfolio down 31% - My lesson

r u a pedestrain?

The sub-headline said - "Measured against other indexes, Singapore's two state-owned investment companies did better."

What is that sub-headline supposed to mean? Shouldn't the Temasek team, with the best of qualification, experience and market knowledge/access, be doing better than any index?

May I cite the following info for my record:-
Temasek Holdings - down 31%
MSCI World Index - down 38%

The 31% drop is equivalent to $60bio drop to $127bio.

Looking at own potfolio which suffered a bigger decline than MSCI's and given the above information, what shall be my future investment strategy?

Since the best fund managers at Temasek team are beyond my reach, the next best option would be to invest in MSCI World Index Fund. Since it is an index fund, it should be quite efficient. Another plus point is that I am also able to bring my future portfolio performance closer to that of Temask's.

P/S - Fool.com's strategy of investing in the widest index fund possible. It is now the time for me to it seriously.

Economic nationalism economic reality or protectionism?

a woman and her seated dog = lack of civic mindedness

May I quote from editorial page in BT dated Feb 4, 2009,

"As the global economic crisis continues to unfold, there are ominous signs of a rise in economic nationalism and even overt protectionism.

In the United States, the economic stimulus package is studded with 'buy American' provisions, for products ranging from steel to worker uniforms to computers.

In the European Union, authorities are directing banks to lend to domestic entities and are drawing up plans to protect their own 'national champions'.

Amid a rising wave of labour unrest, there are calls to protect jobs for domestic workers as against foreigners - and this is evident in Asia too."

Is protectionism symptom apparent in the recent Singapore's budget too?

Is the Jobs Credit scheme inadvertently say "buy Singaporean"?

What if the 9% wage subsidy or negative tax of Jobs Credit scheme inadvertently improve our flexibility to be "price competitiveness" for our exports? Will it develop into a full fledged farm subsidy debates between US and Europe? Don't think so.

"buy Singaporean" - Is it the same as sell foreign talents/workers? Are we forsaking our ethos on meritocracy?

A coffee shop discussion with an informed friend gave me an alternate interpretation. The Jobs Credit Scheme is an attempt to keep a core group of Singaporeans to continue to exercise their respective trade, business, profession and vocation over the duration of current financial storm. So that when the storm passes, this group of survived Singaporeans (ie. with the stronger genetic code) can go forth and multiply ie. sustaining Singapore Inc.

Singapore Budget 2009 - My budget chats

Dear Friends,

Happy 'Niu' Year to you.

The Singapore Budget 2009 has been touted as bold. I do agree with this labelling to a big extent.

I have placed my comment on the Budget at AccountingWithEdgar blog. My latest entry is my alternative views to Dr Basant Kapur's idea to roll back GST to stimulate Consumption.

So please have a read through and share with me your views and comment too.

Gongxi to you!