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Thursday, March 31, 2011

BLOOMBERG: Berkshire's Sokol Resigns as Buffett Discloses Top Deputy's Lubrizol Stake

David Sokol

David Sokol former chairman of Midamerican Energy Holdings Co. Photographer: Chris Rank/Bloomberg

March 30 (Bloomberg) -- Paul Lountzis, founder of Lountzis Asset Management, and Charles Ortel, managing director at Newport Value Partners, talk about David Sokol's resignation from Berkshire Hathaway Inc. Sokol, one of Warren Buffett's top managers, stepped down after helping to negotiate the acquisition of a company whose shares he had purchased. Lountzis and Ortel speak with Julie Hyman on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

David Sokol, once a candidate to succeed Warren Buffett as the head of Berkshire Hathaway Inc. (BRK/A), resigned as it was disclosed he helped negotiate a takeover while buying stock in the target company.

Sokol, 54, bought about 96,000 Lubrizol Corp. (LZ) shares in January before recommending the company as a takeover target, Buffett, Berkshire’s chairman and chief executive officer, said yesterday in a statement. Sokol had initiated confidential talks with Lubrizol the month before. Berkshire agreed to buy the firm for $9 billion on March 14.

Buffett, 80, has relied on Sokol as a manager and a dealmaker for more than a decade. The billionaire, who’s been planning his succession, is awaiting approval from regulators and shareholders for the Lubrizol deal. Enforcement lawyers at the U.S. Securities and Exchange Commission were reviewing Buffett’s statement and discussing the matter internally, according to one person with knowledge of the talks.

“The SEC is going look at that deal to check for insider buying and selling, so if there’s an issue the time to clean it up is now,” said Daniel Genter, president of RNC Genter Capital Management in Los Angeles, which oversees about $3.7 billion.

Berkshire Class B shares fell 3 percent to $82.90 in extended trading in New York after the announcement, and have risen about 6.7 percent this year. Sokol was chairman of Berkshire’s MidAmerican Energy Holdings and its roofing unit Johns Manville. He was also CEO of NetJets Inc., Berkshire’s luxury-flight subsidiary.

Share Purchases

Sokol bought 96,060 Lubrizol shares on Jan. 5, 6 and 7, less than two weeks before proposing that Berkshire buy the company, Buffett said. The purchases may have given him a profit of about $3 million, according to Buffett’s disclosure and Bloomberg calculations. Sokol’s compensation from MidAmerican totaled $59.5 million in the last five years, according to the unit’s SEC filings.

“It’s just a classic case of someone not fitting into that Buffett culture,” said Lawrence G. McDonald, president of McDonald Advisory Group in New York and author of “A Colossal Failure of Common Sense: The Inside Story of the Collapse of Lehman Brothers” with Patrick Robinson. “That’s the type of thing you might do at another hedge fund, but you don’t do it at Berkshire.”

Buffett said in the statement that he thought Sokol’s stock purchases were legal. Sokol said he didn’t trade on inside information, according to a statement from Fox Business Network.

Buffett’s Interest

“I didn’t think Warren would be interested in buying Lubrizol anyway,” Fox Business Network cited Sokol as saying in an interview. “The only reason Warren Buffett mentioned it in the release is because it would have to be brought up anyway when Berkshire put the purchase up for a vote.”

Ann Thelen and Tina Potthoff, spokeswomen for MidAmerican, didn’t return calls and e-mails seeking comment from Sokol. Debbie Bosanek, an assistant to Buffett, confirmed his statement.

A surge in options trading in the week before the takeover suggests that investors may have been speculating with insider information, according to Ophir Gottlieb, head of client services at Livevol Inc., a San Francisco-based provider of options-market analytics. Call trading surged to 2,931 contracts on March 9, and open interest for the April $110 calls jumped to 2,654 from 41.

Sokol joined Omaha, Nebraska-based Berkshire in 2000 when he sold MidAmerican, which he led as CEO, to Buffett for about $9 billion. Under Berkshire, Sokol retained a minority equity stake in MidAmerican and expanded the unit by buying a natural gas pipeline and power producers in California and the U.K.

Scouting Acquisitions

Sokol relinquished the CEO position in 2008 and broadened his duties at Berkshire by scouting deals like an investment in China’s BYD Co. and a rescue package for Constellation Energy Group Inc.

“He was the heir apparent,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “The exercise of his recommending Lubrizol to Warren Buffett was like a CEO in training.”

Sokol instructed Citigroup Inc. (C) on Dec. 13 to arrange a meeting with Lubrizol CEO James Hambrick, according to an SEC filing last week. The two men spoke on the telephone on Jan. 14 and met on Jan. 25. Sokol told Buffett he was a shareholder in Lubrizol, the Wickliffe, Ohio-based maker of engine lubricants, when the two men first discussed a possible deal, according to the statement yesterday.

“It was a passing remark and I did not ask him about the date of his purchase or the extent of his holdings,” Buffett said. Buffett learned about the size and dates of the purchases “shortly before I left for Asia on March 19,” he said.

Shares Rise

Sokol’s stake as reported by Buffett would have been worth about $9.92 million on Jan. 7, based on the closing price on the New York Stock Exchange. The shares have risen about 30 percent to $134.01 since Buffett’s deal was announced, boosting the stake, if Sokol still owns it, to $12.9 million.

“I don’t attribute this to a failure of character or a scheme, but rather more of an honest oversight that happens in the hustle and the bustle of trying to get jobs done and the enthusiasm that comes about from a good idea,” Thomas Russo, a partner at Berkshire investor Gardner Russo & Gardner, said of Sokol’s trades. “There’s way too much at stake to risk for such small reward.”

Berkshire said in February it has four candidates to succeed Buffett as CEO, without publicly identifying them. Investors including Buffett biographer Andrew Kilpatrick had said Sokol was the most likely successor. On March 23, Buffett said at a news conference in India that Ajit Jain, Berkshire’s reinsurance head, would win the support of directors if he decided to seek the top job.

‘Totally Honorable’

“I really feel about him like I would a brother or a son,” Buffett said of Jain. “He’s not only excelled at every single task he’s taken on in insurance, but he’s behaved in a way that’s been totally honorable.”

Buffett said in the statement that he hadn’t asked for Sokol’s resignation and that it came as a surprise. Twice in years past Sokol had considered resigning and been persuaded to stay, Buffett said. Berkshire is “far more valuable today” because of Sokol’s service, Buffett said. Sokol said he will devote his career to investing his family’s resources and may start an enterprise, according to Buffett’s statement.

“There likely will be an investigation,” said Jacob Frenkel, an attorney at Shulman Rogers Gandal Pordy & Ecker in Potomac, Maryland, and a former SEC lawyer specializing in fraud and stock manipulation cases. “If all we have here are purchases before making a recommendation, and the decision to pursue an acquisition doesn’t commence until after the transactions are completed, that wouldn’t satisfy the definition of insider trading.”

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NEW YORK POST: Warren Buffett-ed

Last Updated: 4:17 AM, March 31, 2011

Posted: 11:46 PM, March 30, 2011

The whiff of shady stock trading has rocked the top ranks at Warren Buffett's investing empire.

David Sokol -- a longtime lieutenant at Berkshire Hathaway who was widely seen as a potential successor to the 80-year-old Wall Street icon -- quit abruptly after revealing he had purchased shares in a chemical company called Lubrizol prior to Berkshire acquiring the company earlier this month on his recommendation.

In a rare, personal statement yesterday, Buffett said Sokol -- who was CEO of NetJets and other Berkshire companies -- told him his departure wasn't related to the Lubrizol trades, and excerpted Sokol's resignation letter, which voiced the vague ambition to "provide opportunity for my descendants and funding for my philanthropic interests."

AP
David Sokol (above), CEO of Berkshire Hathaway’s NetJets, unexpectedly quit yesterday after Warren Buffett learned of Sokol’s stock purchases of Lubrizol prior to recommending to Buffett that Berkshire buy the company.

While Sokol's story drew skepticism yesterday, Buffett insisted in his candid statement that, "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful."

Securities and Exchange Commission lawyers were reviewing the Buffett letter, according to one source. The SEC and the Department of Justice declined to comment.

In his defense, Sokol told Fox Business late yesterday that "there was no inside information. The only reason Warren Buffett mentioned it in the release is because it would have to be brought up anyway when Berkshire put the purchase up for a vote. It's a disclosure issue."

Some on Wall Street might disagree.

"We were surprised and deeply disappointed that someone we thought was a seasoned and proven exective and a man who we thought was a likely successor to Warren Buffett would be a part of this," said Whitney Tilson, co-founder of hedge fund T2 Partners and a big Berkshire investor.

"We are at a loss to explain why Sokol did what he did."

The hedge-fund manager added that "Buffett probably doesn't think this is illegal but he wasn't happy."

According to a chain of events outlined by Buffett, Sokol bought and sold 2,300 Lubrizol shares during a week in December, then put in an order to buy more than 96,000 shares in early January at no more than $104 a share.

Then, in mid-January, Buffett said Sokol began pitching him on Lubrizol. On March 14, Berkshire acquired the firm for $9 billion, or $135 a share -- netting Sokol a cool profit of about $3 million.

"Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea," Buffett wrote.

"Of course, he did not know what Lubrizol's reaction would be if I developed an interest," Buffett added, noting that the deal required the approval of the board, "of which Dave is not a member."

Nevertheless, the mere fact that Sokol knew he would try to persuade Buffett to buy Lubrizol qualifies as inside information, according to some legal experts.

"If people find out Berkshire is even considering buying a company that can have a big effect on the stock," said one securities lawyer after reading Buffett's statement. "Sokol's secretary couldn't have gotten away trading Lubrizol knowing that information, so why should he?"

Experts said Buffett -- who has long traded on a squeaky-clean, Midwestern image -- likewise raised questions by noting that he learned of Sokol's December Lubrizol trades "shortly before I left for Asia on March 19."

"It sounds like he's trying to say, 'I only learned about this 10 days ago and was on my way out of the office,' " according to one lawyer. "Why didn't he say something sooner?"

In after-hours trading, Berkshire B shares sank 3 percent to $82.90

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CNBC: Surprise Resignation of Leading Buffett Successor Raises Unanswered Questions

Published: Wednesday, 30 Mar 2011 | 7:45 PM ET
By: Alex Crippen
Executive Producer


David Sokol
David Sokol

In an "unusual," to say the least, news release tonight, Warren Buffett announced the sudden resignation of David Sokol, the Berkshire Hathaway executive who had been widely expected to eventually succeed Buffett as Berkshire's CEO.

Why? Sokol wants to "create enduring equity value and hopefully an enterprise which will provide opportunity for my descendents and funding for my philanthropic interests."

But that's not all.

In the release, which Buffett says he's written "almost as if it were a letter," he also recounts at some length how Sokol had bought shares of Lubrizol before Berkshire announced its $9 billion acquisition of the company on March 14.

Buffett first heard from Sokol that he owned Lubrizol shares two months ago, and "learned" details of the purchases (and a sale) just before he left for Asia less than two weeks ago.

Yet Buffett writes he didn't ask for Sokol's resignation and it came as a "total surprise" when Sokol's resignation letter arrived Monday afternoon, delivered by Sokol's assistant.

And he writes explicitly, "Neither Dave nor I feel his Lubrizol purchases were in any way unlawful. He has told me that they were not a factor in his decision to resign."

That raises the question: If the Lubrizol stock buys aren't behind Sokol's resignation, why did Buffett include the narrative?

It sounds like a pre-emptive "get it all out there" disclosure that's meant to blunt reaction to negative news by telling the entire story the way you see it right away, before it trickles out through insinuating news reports.

As he defended Goldman Sachs just after the SEC filed a complaint against the firm in May, 2010, Buffett told us Goldman had "lost the PR battle" because it did not publicly respond quickly enough to the SEC's accusations.

"I think in terms of getting the facts out, the sooner you do it, as I've said, get it right, get it fast, get it out, get it over. That's easier said than done, but I do think that's generally a good guideline whenever some event causes you a problem."

Did Buffett think that someone might see a problem with Sokol's stock purchases?

In the release, Buffett recounts how Sokol "brought the idea for purchasing Lubrizol to me on either January 14 or 15." At that time, says Buffett, Sokol mentioned that he owned some Lubrizol shares. It was a "passing remark" and Buffett says he didn't ask for details.

At first, Buffett says he was "unimpressed" with Sokol's idea.

On January 24, Buffett "sent Dave a short note indicating my skepticism about making an offer for Lubrizol and my preference for another substantial acquisition for which MidAmerican had made a bid." (MidAmerican is a Berkshire subsidiary. Sokol was its Chairman.)

Buffett, however, "quickly warmed to the idea" after Sokol reported on his January 25 "dinner conversation" with Lubrizol CEO James Hambrick.

Buffett points out that the "offer to purchase was entirely my decision" and that "Dave's purchases were made before he had discussed Lubrizol with me and with no knowledge of how I might react to his idea."

"In addition, of course, he did not know what Lubrizol's reaction would be if I developed an interest. Furthermore, he knew he would have no voice in Berkshire's decision once he suggested the idea; it would be up to me and Charlie Munger, subject to ratification by the Berkshire Board of which Dave is not a member."

That ratification came on March 13.

A few days later, Buffett writes that he "learned that Dave first purchased 2,300 shares of Lubrizol on December 14, which he then sold on December 21. Subsequently, on January 5,6 and 7, he bought 96,060 shares pursuant to a 100,000-share order he had placed with a $104 per share limit price." Buffett does not say how he "learned" those details.

More than a week later, Sokol resigns.

Buffett ends with this sentence: "I have held back nothing in this statement. Therefore, if questioned about this matter in the future, I will simply refer the questioner back to this release."

There are, however, many questions still being asked, with suggestions that Sokol should have been fired for creating even the appearance of impropriety. (Check out the heated discussion on The Kudlow Report tonight.)

At this point, it feels like Buffett is losing his own "PR battle" despite his self-described "unusual" press release. He got it out fast, but he may not be getting it 'over.'

We'll hear directly from Sokol when he appears live on CNBC's Squawk Box tomorrow (Thursday) morning at 7:40 AM ET.

Stay tuned.

Current price: [BRK.B 85.46 0.75 (+0.89%) ]

Current Berkshire stock prices:

Class B:

Class A: [BRK.A 128103.00 1093.00 (+0.86%) ]


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Saturday, March 26, 2011

TIMES OF INDIA: Buffett's Kiss philosophy: Just Keep It Simple, Stupid!



NEW DELHI: When it comes to investing, just Kiss (Keep It Simple, Stupid). This is the message from
Warren Buffett, the Oracle of Omaha.

The billionaire investor suggested that you should only invest in asset classes that you are comfortable with. "People pick up (saving and investment ) habits from their parents . Most people don't know much about investment. So, if you are uncomfortable with the asset class that you have picked, then chances are you will panic when others panic."

When Buffett met several individuals who bought insurance policies from Berkshire, the agent for Bajaj Allianz General, the overriding investment philosophy seemed to be an emotional comfort.
While he wants Berkshire to keep at least $10 billion in cash, the advice for individuals is the same—keep some cash ready to tide over any eventuality. "You should keep enough cash so that you don't do foolish things when others are doing foolish things, Buffett said. But how much is good enough is a matter of personal comfort," he added.

Though Indian households might prefer to keep buying gold, the investment guru thinks otherwise. His preference is to invest in an asset class that is productive and does not depend on price rise potential. He said that the entire gold produced (1.65 lakh tonne), which is valued at $7 trillion, could be stored in a large room of 67 cubic feet. "You can do what you want with this. People like gold as they hope someone will pay more (in the future)," he said.
The Kiss philosophy, which Buffet said has served him well for six decades, means that you should not be swayed by sectors . Instead, look at a company's earning prospects over the medium to long term. Besides, he said the quality of management is critical.

"I invest in a company if I understand its business and can predict the utility of its products that it manufactures or services that it offers in future ," he said. He pointed to his $34 billion investment in Burlington Northern, a railroad company in the US, which has large potential given that its competitor truckers have to buy costlier petroleum to run the fleet.

But at times, Buffett said you have take a call between a good investment with potential to do well over the next few years and one that offers even better prospects. He cited the example of his exit from Johnson & Johnson after financial crisis and used the money to buy preferred stocks of GE. Buffett, however, said that buying a stock was an easier decision than selling. And, he admitted that he had made mistakes in not exiting when valuations were high. Besides, at times, he also trusted the management more that he should have.

So, what keeps him going at 80? Again the answer is simple : He enjoys doing what he is doing and age has not diminished his appetite. "You don't need hand-eye co-ordination . I don't need muscles (to keep going )," he said.

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CNBC: Buffett's New Bets




Airtime: Tues. Mar. 22 2011 | 2:34 AM ET

CNBC's Becky Quick has the details on billionaire investor Warren Buffett's trip to Asia to check on new investment opportunities.

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CNBC VIDEO: No More Stimulus Required to Power Recovery







Airtime: Thurs. Mar. 24 2011 | 1:12 PM ET

Warren Buffet, chairman & CEO of Berkshire Hathaway, says central banks don't need to flood the world with more money in order to keep economic expansion going.

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CNBC VIDEO: The Oracle's India Tour






Airtime:
Fri. Mar. 25 2011 | 1:44 AM ET

CNBC's Becky Quick has the highlights from billionaire investor Warren Buffett's trip to India.

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BLOOMBERG: Buffett Says Buy Businesses Over Long-Term Bonds as Dollar Value to Erode

Berkshire Hathaway CEO Warren Buffett

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. Photographer: Prashanth Vishwanthan/Bloomberg

Warren Buffett, the billionaire who urged Congress in 2009 to guard against inflation, said investors should avoid long-term fixed-income bets in U.S. dollars because the currency’s purchasing power will decline.

“I would recommend against buying long-term fixed-dollar investments,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc. (BRK/A), said today in New Delhi. “If you ask me if the U.S. dollar is going to hold its purchasing power fully at the level of 2011, 5 years, 10 years or 20 years from now, I would tell you it will not.”

Buffett, 80, has shortened the duration of Omaha, Nebraska- based Berkshire’s bond holdings since 2009 as the U.S. Federal Reserve eased monetary policy to stimulate the economy. Over the same period, he has added to cash holdings and committed more than $35 billion to company takeovers.

“I would much rather own businesses,” he said. “It’s very easy to take away the value of fixed-dollar investments.”

The Fed and U.S. Treasury Department have pumped money into the economy since the financial crisis through bank bailouts, government stimulus and near-zero interest rates. Buffett said in an August 2009 op-ed in the New York Times that the government must address this “monetary medicine.”

Outlook for Inflation

Inflation expectations among consumers rose in March to the highest level since August 2008, according to the Thomson Reuters/University of Michigan final index of consumer sentiment. Consumers said they expect inflation at 3.2 percent over the next five years, compared with 2.9 percent last month.

Buffett, traveling in India to review Berkshire’s operations and scout opportunities, took questions at a meeting with insurance customers and spoke on topics from the economy to investments. Buffett, who built Berkshire through stock picks and takeovers, advised investors to be wary of valuations for social-networking websites as some of the industry’s biggest companies prepare to sell shares.

“Most of them will be overpriced,” Buffett said. “It’s extremely difficult to value social-networking-site companies,” he said, without naming firms. “Some will be huge winners, which will make up for the rest.”

Buffett has shunned technology investments in favor of industrial, financial and consumer-goods holdings in his four decades at Berkshire. As of Dec. 31, the company owned about $61.5 billion of stocks, $34.9 billion of fixed-maturity securities and $23 billion of “other investments.”

Berkshire’s securities maturing in more than 10 years fell 31 percent to $2.72 billion in the 18 months ended Dec. 31, according to regulatory filings. In that span, the company’s cash holdings surged 56 percent to $38.2 billion.

Buffett completed his biggest takeover, the $26.5 billion acquisition of railroad Burlington Northern Santa Fe Corp., last year. On March 14, he agreed to buy Lubrizol Corp., the world’s largest producer of lubricant additives, for about $9 billion


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Wednesday, March 23, 2011

CNBC: Berkshire Will Not Exercise Goldman Sachs Warrants Immediately

Published: Sunday, 20 Mar 2011 | 1:40 AM ET
By: Becky Quick
CNBC Anchor


Berkshire Hathaway will not exercise its $5 billion of warrants in Goldman Sachs immediately, even though doing so would result in a profit of nearly $2 billion, billionaire investor Warren Buffett told CNBC.

Warren Buffett
Getty Images
Berkshire Hathaway CEO Warren Buffett

The news, which comes the day after Goldman notified Berkshire that it will call its $5 billion in Goldman preferred shares in 30 days, signals that the Oracle of Omaha thinks Goldman stock

Goldman Sachs Group Inc
GS

160.6603 0.4503 +0.28%
NYSE
[GS 160.6603 0.4503 (+0.28%) ] is worth even more than the roughly $160 a share it trades at today. Berkshire's warrants come with an exercise price $115 a share.

"I think the odds are that it goes higher," Buffett, the chairman and CEO of Berkshire Hathaway, said. "Over time most stocks will get more valuable, and I have no reason to think Goldman Sachs is an exception to that."

Of course, with this investment the clock is ticking. Buffett's Goldman warrants expire in 2013.

Buffett made the original investment in Goldman at the height of the financial crisis in the fall of 2008. He had passed on many deals that came his way during that time, and so his decision to invest in Goldman helped shore up market sentiment in the investment bank at the time.

But it came at a steep price for the bank: Berkshire's shares come with a dividend of 10 percent, roughly $500 million a year.

Goldman was eager to end the arrangement. It acted to buy back the shares the same day that it — and other banks — received approval from the Federal Reserve to buy back shares and raise their dividends.

Buffett also made a big bet in General Electric

General Electric Company
GE

19.51 -0.21 -1.06%
NYSE
[GE 19.51 -0.21 (-1.06%) ] during the same time period, buying $3 billion in GE preferred shares that also came with a 10 percent dividend. General Electric cannot redeem those shares until this fall.

"GE has said they're going to call the preferred as soon a they can, which I believe is some day in October this year," Buffett added.

GE is a minority shareholder in NBC Universal, CNBC's parent company.

Current Berkshire stock prices:

Class B:

Berkshire Hathaway Inc
BRK.B

84.99 -0.18 -0.21%
NYSE
[BRK.B 84.99 -0.18 (-0.21%) ]

Class A:

Berkshire Hathaway Inc
BRK.A

127464.0078 -311.9922 -0.24%
NYSE
[BRK.A 127464.0078 -311.9922 (-0.24%) ]


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Read the full transcript of the March 2 Squawk Box Interview with Warren Buffett
Download the 2010 Berkshire Hathaway Annual Report
Download the 1977 - 2010 Warren Buffett Letter's to Berkshire Hathaway Shareholders

From Amazon

Invest like a Billionaire: If you are not watching the best investor in the world, who are you watching? (2010)Invest like a Billionaire: If you are not watching the best investor in the world, who are you watching? (2010)
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How to Build a Business Warren Buffett Would Buy: The R. C. Willey StoryHow to Build a Business Warren Buffett Would Buy: The R. C. Willey Story by Jeff Benedict
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