Friday, December 15, 2006


The Sage Does it Again

Don’t you hate it when you hear someone brag about the stock he or she told you about sometime ago (advice you didn’t follow) that went up umpteen percent? Well, I’m going to risk your condemnation by recounting a series of articles published herein a few years ago, although technically, the stock itself was not the point of the recommendation.

Exactly three years and two months ago in October of 2003, I published an article titled “Buffett and Ben—that’s as Good as it Gets, Part I.” Over the next months, this four part series of articles expounded on how the legendary investor, Benjamin Graham, (who was also a professor at the Columbia University School of Business) became Warren Buffett’s employer, mentor, and model, leading ultimately to Buffett’s enormous wealth (somewhere in the neighborhood of $45 billion) as the second richest man in the world.

On October 26 of this year, an unprecedented event occurred that suggested we revisit the subject. On that day, stock shares of Berkshire Hathaway, the company run by Warren Buffett, closed on the New York Stock Exchange at over $100,000—just one share was worth that amount. Berkshire Hathaway stock has been the highest priced stock for several decades, primarily the result of two factors: 1) Buffet refuses to split the stock, although several years ago he did agree to issue “B” shares worth 1/30 th the value of the “A” shares. 2) He has never declared a dividend maintaining that he can produce more value for his investors by investing that money than they could—and he has been proven right.

In addition to the favorable publicity regarding his company’s record setting price, Mr. Buffett has also been the recipient of significant accolades. His recent announcement that he was making the largest charitable gift in history (a commitment of more than $30 billion to the Bill and Melinda Gates foundation) stunned the charitable world for more than one reason. While totally characteristic for Buffet, unlike almost every other large donor, he declined to put his name on the foundation.

That selfless attitude probably also contributed to the further recognition afforded to the world’s second richest person, with his citation in the October 20 th issue of U.S. News & World Report as one of “America’s Best Leaders.” As part of the cover story, the magazine writes, “But Warren Buffett did not become one of ‘ America’s Best Leaders’ just for his investing prowess. Rather, he was selected for his leadership and influence in the greater corporate world. His commitment to sound ethics and principles, his self-discipline and consistency, his transparency in disclosing mistakes, his criticism of Wall Street fees and compensation of underperforming CEO’s, and his pleas for improving corporate governance—all had a salutary influence on the corporate community.”

To top off the recognition being afforded to the world’s second richest person, on November 20 th, CNBC ran a full one-hour TV program titled, “Warren Buffett, the Billionaire Next Door.” That must have set some kind of a precedent.

As for the bragging rights regarding stock prices referred to earlier, I must admit they are conditional upon what the starting date is for comparison purposes. The first article of the four part series on Buffett and Ben Graham was received by readers on or about October 15 th, 2003. On that date Berkshire Hathaway stock closed at $76,975. As of the date the article you are reading was submitted for publication (November 22 nd, the stock closed at $107,400 a 39.52 percent increase. (Not too shabby.) Over that same period the Dow Jones Industrial Average (DJIA) went form 9800 to 12,322, a 25.73 percent increase. It seems bragging rights may be deserved—but hold on a minute.

Let’s skip to the fourth article in the series that was received around February 15 th, 2004. On that date, the stock closed at $91,900, a startling 19 percent increase over a short four-month period. That again compared most favorably with the DJIA’s 8 percent increase. I’d like to attribute that impressive run-up to my articles, but that would be wishful thinking.

While these numbers are certainly a tribute to Warren Buffett’s acumen, the more recent history is not quite as favorable. Between February 15, 2004 and the present, Berkshire Hathaway has risen 16.86 percent, just slightly better than the performance of the DJIA at 15.9 percent. However, regardless of how you judge the productive quality of the numbers, the stock itself was never the focus of the articles. That can best be described by quoting from the last article in the series:

“The simplest and most effective way to duplicate Buffett’s future performance is to allow him to manage your money. That’s right! Instead of searching for the (elusive, and possibly non-existent) talented stockbroker, money manager, or mutual fund manager, you can hire Warren Buffett, acknowledged as the world’s best investor ever, to be your personal money manager (at no cost to you). How? Buy shares in Berkshire Hathaway. This is not to be construed as a recommendation or suggestion that your portfolio will benefit from this advice. However, if you believe that Buffett will continue to outperform the market averages, your performance will equal his. If the “A” shares are too pricey at some $90,000 per share, the “B” shares can be bought for under $3000 as of the end of January. I had disclosed my ownership of Berkshire Hathaway shares previously.”

I hope you get the point that if there is an implication that Berkshire Hathaway shares should be purchased, they are only a proxy for the ability to have Warren Buffett manage your money. You couldn’t do better—don’t you think?

More Florida Bashing

If there is one habit I abhor, it is the tendency of journalists to criticize their “elders”—that word refers to those who are indubitably smarter than these half-baked critics. This group of elders certainly must include politicians who are obviously brilliant since they invariably outsmart those who elect them. Doesn’t that prove the point?

So, when it comes to columnists who write on political affairs, especially those featured on the editorial or op-ed pages, all they do is criticize, criticize, and criticize. Also, consider some of the humor denigrating our illustrious electees to the Halls of Congress. Some of these so-called witty remarks go back to the 1860’s, radical comments that should have compelled Congress to restrict the freedom of speech segment of the constitution, thus avoiding this historic debacle. For example, this comment by Mark Twain has been allowed to fester for some 140 years: “It could probably be shown by facts and figures that there is no distinctively native criminal class—except for Congress.” Even if it’s true, that is shameful. Even more so was this Twain remark: “Suppose you were an idiot. And suppose you were a member of Congress. But I repeat myself.” That should require a jailing.

Then there was Will Rogers. Did you know he was part Cherokee? For that alone he should have been deported. Instead, he became famous for saying, “Congress is the best money can buy.” C’mon now! Those K-Street lobbyists have to earn a living too. Don’t they?

Now we have Stephen L. Goldstein in the Sun-Sentinel making even more disparaging remarks, this time about politicians’ activities relating to our educational system. He writes, “Every Floridian owes the ‘Pottery Barn’: Republicans have broken our schools, but the rest of us get to pay their bill. The misguided education policies of Jeb Bush, Charlie Crist, and their supporters have academically crippled about 5 million public school students — and counting. Many have dropped out and will live off tax dollars. Others may graduate but will be permanently paid a pittance. Florida will wind up with a bevy of busboys, but a thimbleful of teachers.”

Doesn’t Goldstein ever eat out? Doesn’t he realize that busboys are a significant segment of Florida’s key resources? They are one of the critical reasons for the outstanding reputation of our renowned Florida restaurants. Busboys must be given credit for the fast clean-ups after diners finish their Early Bird specials, allowing for the wealthier full price patrons to overpay, and thereby contribute to Florida’s economic success. Obviously, Goldstein failed basic economics.

The Goldstein article is headlined, “Jeb [Bush] fails my ‘FGAT.’” The claim is made that “after nearly a decade of diddling, the grades are in and Jeb has flunked my FGAT (my Florida Governor’s Assessment Test).” He then claims that “based upon a mountain of federal stats, the just released Morgan Quitno Education State Rankings for 2006-2007 proves, without a doubt, that he and Republicans promised us top-notch schools, but delivered bottom of the barrel.” As if this wasn’t enough bashing, Goldstein then proclaims, “Under Jeb Bush, Florida public schools can’t even meet his brother’s federal education standards. According to the No Child Left Behind Act, each state has to make adequate progress in reading, math graduation rates, and attendance rates. But Florida had the second worst yearly progress in 2005.” Don’t you think information of that nature should be classified and removed from public scrutiny? Facts like that destroy public confidence in our legislators.

Then, Goldstein quotes from a report developed by Morgan Quitno, a company that evaluates statistics related to city and state information and provides the results to governments, libraries, and the media. Now get this: they have been doing this for only a mere 17 years, so how accurate can the information be?

The key to Mr. Goldstein’s failing is the information he cites in his evaluation of student scores reported by Morgan Quitno as they are calculated by ACT tests. These tests measure general education development and the ability to complete college work. Not trusting the numbers provided by Mr. Goldstein, I did my own research, going directly to the ACT website. Guess What! Sure enough, I found errors in Mr. Goldstein’s report. For example: Goldstein reports that in 2006, “the state average composite ACT score was 42 nd in the nation.” Ha! Ha! Mr. Goldstein, the correct ranking was actually worse at 44 th out of 50. Then, he says that on the Math score Florida was 37 th in the nation whereas we were really 39 th. The joke is on you Mr. Goldstein. To top it off he cites Florida high school students’ ranking on SAT scores. We were 49 th nationally in Math, 40 th in critical reading, and 48 th in writing.

Trying to explain these rankings, Mr. Goldstein uses the following rather lame excuses: “By national funding standards, Florida’s investment in public elementary and secondary schools adds up to down. In 2006, the average salary of Florida public school teachers sank to 31 st in the nation — down from 29 th in 2004. In 2005, we were 40 th in estimated per capita public school revenue, 32 nd in per pupil revenue, 47 th in per capita current expenditures, 40 th in per pupil expenditures.”

Now look Mr. Goldstein, if these numbers are truly accurate, how do you explain that our college football teams are always top ranked? And tell me this — which rankings are really more important, the student scores, or the college football rankings? Gotch’a on that one Goldstein, didn’t I? Actually, we could improve the football rankings even further except for one minor problem — many potential football stars are excluded from entering college for the trivial reason that they dropped out of high school. In fact, in 2005, Florida’s public high school graduation rate was 50 th in the nation —worse than in 2003 when it was 47 th.

You know what? Don’t you think our governor (and his like-minded friends in the state legislature) deserves some sign of appreciation for the educational performance record we have attained. So, are you ready? All together now, let’s give our governor a really loud — You’re doing a great job, Jebbie!!!


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