Warren Buffett makes reference to "porn shops" in an analogy, funny :)

[OptionsTrader]

http://www.bloomberg.com/apps/news?pid=20601109&sid=aLHP7JHTAHHM&refer=home

Buffett Says Sell to Berkshire, Not `Porn Shop' (Update1)

By Richard Teitelbaum

June 25 (Bloomberg) -- Warren Buffett is in Toronto, fielding questions from a crowd of 300 executives. One asks what makes people want to sell their companies to him.

The Berkshire Hathaway Inc. chief executive officer replies that he tells a prospective seller to think of the company as a work of art.

``You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever,'' he says at the February meeting. ``Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''

...

 

[yongrel]

Well, porn shops are certainly more interesting than the Metropolitan Museum of art.

 

[WRellim]

http://www.bloomberg.com/apps/news?pid=20601109&sid=aLHP7JHTAHHM&refer=home

Buffett Says Sell to Berkshire, Not `Porn Shop' (Update1)

By Richard Teitelbaum

June 25 (Bloomberg) -- Warren Buffett is in Toronto, fielding questions from a crowd of 300 executives. One asks what makes people want to sell their companies to him.

The Berkshire Hathaway Inc. chief executive officer replies that he tells a prospective seller to think of the company as a work of art.

``You can sell it to Berkshire, and we'll put it in the Metropolitan Museum; it'll have a wing all by itself; it'll be there forever,'' he says at the February meeting. ``Or you can sell it to some porn shop operator, and he'll take the painting and he'll make the boobs a little bigger and he'll stick it up in the window, and some other guy will come along in a raincoat, and he'll buy it.''

...

Interesting. Also a total LIE. It won't be in the museum "forever." Half the time a few years after he buys it, Buffet himself will get sick of looking at the thing and will auction off the outer frame off the painting, and sell the canvas to someone to patch a hole in their roof.


And eventually ...after Buffett himself is dead & gone, The entire BH "museum collection" will end up getting all kinds of botox injections (some would say there already IS a lot of that, BTW) plus silicone implants, and a host of cosmetic surgical operations ...after which various body parts will be sold to a variety of porn producers, bone collectors and dog food companies.

And that's life.


BTW, you also entirely skipped the most interesting paragraphs in the whole article.

Insurance firms dominate the list of Berkshire-owned companies. Buffett controls a dozen of them -- Berkshire Hathaway Reinsurance, General Re Corp. and Geico Corp. are the biggest -- accounting for 31 percent of Berkshire's 2007 revenue.

"I would say we have a special affinity for insurance,'' Buffett said at the 2007 annual meeting's news conference.

Competitive Advantage

One reason is that Buffett loves float -- the premiums collected from policy holders that can be invested at a profit until claims need to be paid. As of the end of December, Berkshire had $58.7 billion of float.

Most people don't understand that this is THE KEY to Buffet's success... the "float" inherent in the insurance industry. It is much like check-kiting... just a lot longer term. Works great until the insurance companies have to pay out big-time on claims (and then they find 100's of reasons to examine the small type in those contracts to cause delays and defaults... in essence, it is a form of fraud, much like FR banking).

 

[WRellim]

And another interesting set of paragraphs even further down:

Buffett's just-plain-folks posture is a bit of a feint. His father, Howard, was an investment banker and a Republican U.S. congressman. Warren attended the Wharton School of the University of Pennsylvania and got a master's degree in economics from Columbia University.

In terms of the businesses he buys, Buffett never tires of telling questioners that he invests only in simple, straightforward industries whose operations he can grasp.

Yet he wagers billions on everything from hedge funds to junk bonds. Through December, Buffett had made $2.3 billion in pretax earnings during the past five years on foreign-exchange bets.

Put Options

And as of March, he had tens of billions of dollars riding on two kinds of derivatives -- instruments he dubbed ``financial weapons of mass destruction'' in his 2002 letter to shareholders. The first is a variety of credit-default swap guaranteeing payment on certain high-yield bonds. Credit-default swaps, which are contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.

Buffett also has sold put options -- contracts that provide the right, but not the obligation, to sell a security, currency or commodity at a set price within a set period -- on four stock indexes. In his 2007 shareholder letter, Buffett wrote that because Berkshire holds the cash connected to the derivatives, there is no risk the parties on the other side of the transaction won't pay.

 

[scooter]

I don't know what you're getting at WRellim about Buffett selling pieces of the business. Nearly every company that Berkshire has bought over the years is still operating exactly as it did before they bought it. Sometimes with even the same management in place. The only difference is that they funnel their profits back to Berkshire corporate, where they are invested by Buffett.

As for using insurance float as investment money, I fail to see how this is a "fraud" as you claim. First off, insurance companies have been doing this forever. That's where the real money is made in the business, not from the premiums. Second off, the vast majority of float is invested in liquid assets. If Berkshire put too much of its float in non-liquid securities and a major hurricane happened, they would go out of businesses. That is, of course, if the feds allowed that to happen.

As with fractional reserve banking, there are many checks and balances in the insurance system to keep companies from pumping and dumping out of control. The only fraud is when the government does not allow those checks and balances to destroy the bad companies. I see absolutely no point in complaining about folks like Buffett who have proven to be extremely crafty in their business and have succeeded in completely legal ways. Just because he may use very complicated strategies doesn't make it a fraud.

 

[DriftWood]

I don't know what you're getting at WRellim about Buffett selling pieces of the business. Nearly every company that Berkshire has bought over the years is still operating exactly as it did before they bought it. Sometimes with even the same management in place. The only difference is that they funnel their profits back to Berkshire corporate, where they are invested by Buffett.

As for using insurance float as investment money, I fail to see how this is a "fraud" as you claim. First off, insurance companies have been doing this forever. That's where the real money is made in the business, not from the premiums. Second off, the vast majority of float is invested in liquid assets. If Berkshire put too much of its float in non-liquid securities and a major hurricane happened, they would go out of businesses. That is, of course, if the feds allowed that to happen.

As with fractional reserve banking, there are many checks and balances in the insurance system to keep companies from pumping and dumping out of control. The only fraud is when the government does not allow those checks and balances to destroy the bad companies. I see absolutely no point in complaining about folks like Buffett who have proven to be extremely crafty in their business and have succeeded in completely legal ways. Just because he may use very complicated strategies doesn't make it a fraud.

Exactly, as long as the insurance company pays out what it has promised it has not broken any contract. Same goes for fractional reserve banking, as long as banks pay back the deposit money on request they have broken no contracts. It matters not what the banks or the insurance companies does with the money pool in the mean time. It can keep it locked in a vault, bury it in the back yard, invest it, lend it out, burn it on hookers and drugs.. as long as the customer gets money back when he expects it he will not care. Nowhere in the contracts does it say that the consumer will get back the exact same dollar bills as he put in, and why would it matter. If the insurance company or bank is not able to keep their contracts their reputation and the trust will be gone, no one will do business with them and they will go bust. ( As long as the govt does not bail them out )

Cheers

 

[icon124]

haha yeah I read this the other day...good article