TARP Warrants Auction Chart

Here is the most recent publicly traded TARP warrants. I was looking around for this chart, so I thought I'd share it, cheers.


Summary of 2007 Berkshire Hathaway (BRK) Chairman Letter

What were the details of the letter:
• Financial institutions with weak lending practices were suffering as house
prices fell.

• Berkshire acquired Marmon, which Buffett had been paying attention to the
company and its owner, Jay Pritzker, since 1954.

• From 1993 to 2007, percentage increase in pre-tax operating earnings had
grown at a faster pace than per share investments (23.5% vs. 14.3%).

• Enduring “moat.”
  • An example that a moat exists would be a company with high returns on invested capital in a stable industry.
  • In addition, the business should not be dependent on managerial brilliance to be successful.
• Three types of “savings accounts.”
  • Economic returns of a business are dictated by its moats.
  • Example: See’s Candy, FlightSafety, and US Airways.
• Manufacturing, Service and Retailing Operations had 23% returns on
average tangible net worth.

• All of the “big four” in equity holdings had widened their moats during the

• Derivative contracts had no counterparty risk.

• America shipped about $2 billion of IOUs and assets daily to the rest of the

• America’s rule of law, market-responsive economic system, and belief in
meritocracy are almost certain to produce ever- growing prosperity for its

• Unrealistic pension return assumptions and high probability of substantial
pension shortfall in the future.

Practical application:
• Be rational.

• Watch out for the “Helpers.”

• Read the notes in 10-K and 10-Q’s for clues about management behaviour.

Quotes from the letter:

• “A moat that must be continuously rebuilt will eventually be no moat at all.”

• “It’s better to have a part interest in the Hope Diamond than to own all of a

• “Of course, a terrific CEO is a huge asset for any enterprise, and at Berkshire
we have an abundance of these managers. Their abilities have created
billions of dollars of value that would never have materialized if typical CEOs
had been running their businesses.”

• “Charlie and I are not big fans of resumes. Instead, we focus on brains,
passion and integrity.”

• “Some companies have pension plans in Europe as well as in the U.S. and,
in their accounting, almost all assume that the U.S. plans will earn more than
the non-U.S. plans. This discrepancy is puzzling: Why should these
companies not put their U.S. managers in charge of the non-U.S. pension
assets and let them work their magic on these assets as well? I’ve never
seen this puzzle explained. But the auditors and actuaries who are charged
with vetting the return assumptions seem to have no problem with it.”

3+ questions to the group & group discussion:

• What are the differences between a terrific CEO and a typical CEO?

• How do you know if a business’s moat has widened in any given year?

• What makes See’s to stand out from other candy makers in the industry?


Summary of 2005 Berkshire Hathaway (BRK) Chairman Letter

What were the details of the letter:

· Completed five acquisitions (two insurers, a RV manufacturer, Business Wire, and an utility) during the year and now have a portfolio of 68 distinctive businesses.

· Capital allocation has shifted to business acquisitions.

· GEICO increased its market share of U.S. private passenger auto business from 5.6% to 6.1%. One percent of market share equates to $1.6 billion in sales.

· Pricing adjustment in reinsurance business to account for factors that have dramatically increase the intensity or frequency of hurricanes.

· Clayton Homes’ loans portfolio has increased significantly since Berkshire’s acquisitions ($9.6 billion).

· Derivatives have continued to mushroom in the industry; while, Berkshire’s positions from Gen Re securities are soon to be closed.

· Widening “moat” (long-term competitiveness) must take precedence of short-term financial results.

· The abuse of option compensation.

· Gotrocks and Helpers: frictional costs of owning securities have increased significantly and greatly reduced investors’ potential returns.

· Excessive debt is a double-edged sword. A string of success can be washed away with one loss.

Practical application:

· Act on your problem as soon as possible.

· Beware of exotic financial instruments.

· Personal gain/loss dictates someone’s action accordingly.

Quotes from the letter:

· Unlike many business buyers, Berkshire has no “exit strategy.” We buy to keep. We do, though, have an entrance strategy, looking for businesses in this country or abroad that meet our six criteria and are available at a price that will produce a reasonable return. If you have a business that fits, give me a call. Like a hopeful teenage girl, I’ll be waiting by the phone.”

· “Joe, Ajit and I don’t know the answer to these all-important questions [to the factors that caused hurricanes in 2004-2005]. What we do know is that our ignorance means we must follow the course prescribed by Pascal in his famous wager about the existence of God. As you may recall, he concluded that since he didn’t know the answer, his personal gain/loss ratio dictated an affirmative conclusion.”

· “Long contracts, or alternatively those with multiple variables, are the most difficult to mark to market (the standard procedure used in accounting for derivatives) and provide the most opportunity for “imagination” when traders are estimating their value. Small wonder that traders promote them.”

· “So I failed in my attempt to exit painlessly, and in the meantime more trades were put on the books. Fault me for dithering. (Charlie calls it thumb-sucking.) When a problem exists, whether in personnel or in business operations, the time to act is now.”

· “When our long-term competitive position improves as a result of these almost unnoticeable actions, we describe the phenomenon as “widening the moat.” And doing that is essential if we are to have the kind of business we want a decade or two from now. We always, of course, hope to earn more money in the short-term. But when short-term and long-term conflict, widening the moat must take precedence. If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted.”

· “Indeed, the very thought of options with strike prices that are adjusted for retained earnings seems foreign to compensation “experts,” who are nevertheless encyclopedic about every management-friendly plan that exists. (‘Whose bread I eat, his song I sing.’)”

· “Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, ‘I can calculate the movement of the stars, but not the madness of men.’”

· “Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3% compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by December 31, 2099 to – brace yourself – precisely 2,011,011.23.”

· “Any other approach is dangerous. Over the years, a number of very smart people have learned the hard way that a long string of impressive numbers multiplied by a single zero always equals zero. That is not an equation whose effects I would like to experience personally, and I would like even less to be responsible for imposing its penalties upon others.”

3+ questions to the group & group discussion:

· How active should we be with our portfolio?

· What would be an “exit strategy” for our investment?

· Should we account macro factors into investment decision?

Summary of 2003 Berkshire Hathaway (BRK) Chairman Letter

What were the details of the letter:

· Equity holdings, as a percentage of net worth, have fallen to an average of 50%, from an average of 114% in the 1980s.

· Valuations and Berkshire’s size have made it difficult to find attractive stocks.

· Given similar valuations, owning businesses is preferable to owning stocks for Berkshire.

· Capital allocation decision will not be guided by past history or short-term profits.

· As long as the standards for acquiring businesses are met [(1) have favorable and enduring economic characteristics; (2) are run by talented and honest managers and (3) are available at a sensible price], Berkshire will continue to buy businesses under any market or economic conditions.

· Acquired Clayton Homes and McLane from sellers with strong reputation (Clayton, Wal-Mart) and did limited due diligence.

· Buffett was critical of President Bush’s tax proposals that favour large corporation and wealthy individuals.

· Buffett also was critical of mutual fund managers and directors who acted against the interest of investors, chief executives who were paid excessively, and corporate boards of directors who were deemed as “independent” but acted otherwise.

· Risk exposures in derivative are difficult to quantify. Gen Re had been trying to exit its derivative positions.

· “Every tub on its own bottom” philosophy—any subsidiary should pay an appropriate rate of interest and should not be subsidized by its parent.

· Buffett mentioned about the mistake of not selling several of larger equity holdings during The Great Bubble.

· Buffett enlarged Berkshire’s currency trading position based on his expressed concerns about U.S. trade deficits.

Practical application:

· Patience.

· Find people you admire.

· Adapt to changing environment but maintain the same framework that is logical and time tested.

Quotes from the letter:

· A company’s history, for example, may commit it to an industry that now offers limited opportunity. A more common problem is a shareholder constituency that pressures its manager to dance to Wall Street’s tune. Many CEOs resist, but others give in and adopt operating and capital- allocation policies far different from those they would choose if left to themselves.”

· “Under any market or economic conditions, we will be happy to buy businesses that meet our standards. And, for those that do, the bigger the better. Our capital is underutilized now, but that will happen periodically. It’s a painful condition to be in – but not as painful as doing something stupid. (I speak from experience.)”

· “In 1985, Berkshire paid $132 million in federal income taxes, and all corporations paid $61 billion. The comparable amounts in 1995 were $286 million and $157 billion respectively. And, as mentioned, we will pay about $3.3 billion for 2003, a year when all corporations paid $132 billion.”

· “Then, when a management company was sold – invariably act a huge price relative to tangible assets – the directors experienced a “counter-revelation” and immediately signed on with the new manager and accepted its fee schedule. In effect, the directors decided that whoever would pay the most for the old management company was the party that should manage the shareholders’ money in the future.”

· “No matter how financially sophisticated you are, you can’t possibly learn from reading the disclosure documents of a derivatives-intensive company what risks lurk in its positions. Indeed, the more you know about derivatives, the less you will feel you can learn from the disclosures normally proffered you. In Darwin’s words, ‘Ignorance more frequently begets confidence than does knowledge.’”

· “You may wonder why we borrow money while sitting on a mountain of cash. It’s because of our “every tub on its own bottom” philosophy. We believe that any subsidiary lending money should pay an appropriate rate for the funds needed to carry its receivables and should not be subsidized by its parent.”

3+ questions to the group & group discussion:

· Temperament: what exactly is needed to be successful in investment operation?

· Corporate/board misbehavior: should we try to identify them?

· Mutual funds: will you ever consider investing in them or suggest to friend/family?


Summary of 1999 Berkshire Hathaway (BRK) Chairman Letter

What were the details of the letter:

· 1999 was the worst absolute and relative performance in per-share-book value growth of BRK to date.

· Several BRK’s largest investees’ lagged the market in 1999, but the business did better than the stock. Despite the poor showing, Buffett expected BRK to modestly exceed the gain from owning the S&P in the future.

· Buffett expressed his views on why S&P will do far less well in the next decade or two than it had done since 1982, unless the following factors materialize.

o Interest rates must fall further.

o After-tax corporate profitability in relation to GDP must rise.

o The public expectation on equity return must remains lofty.

· Exceptional managerial story by Bill Child, manager of R.C. Willey.

o Bill believed that R.C. Willey could successfully expand in markets outside of Utah and maintain it’s No-Business-on-Sunday policy.

o To back up his business judgment, he personally invested in the land and building of the new store in Boise.

o He would only sell it to BRK at his cost if the store proved to be successful.

o And, he refused to take any interest on the capital he had tied up.

· Insufficient pricing impacted General Re’s results.

· GEICO cost competitive advantages will be sustainable. Overall market share was 4.1% in 1999, up from 2.7% in 1996, with room for significant growth.

· Both FlightSafety International and Executive Jet Aviation had been capital intensive, but they provided services highly valued by customers.

· BRK acquired Jordon’s Furniture and to acquire a major portion of MidAmerican Energy, both from respected referrals.

· Change in goodwill accounting; the end of pooling-of-interests method.

· Look for companies with truly durable competitive advantage.

· Repurchase of BRK shares would only have a minor effect on the future rate of gain in its intrinsic value.

Practical application:

· Identify and associate with first class people.

· Look for people who are willing to tie up their money with their business action.

· Compensation plans have to be simple, directly to relevant operating activities.

Quotes from the letter:

· “We have no contracts at Berkshire. Rather, they [managers] work long and hard because they love their businesses. And I use the word “their” advisedly, since these managers are truly in charge – there are no show-and-tell presentations in Omaha, no budgets to be approved by headquarters, no dictums issued about capital expenditures.”

· “In Ajit, we have an underwriter equipped with the intelligence to properly rate most risks; the realism to forget about those he can’t evaluate; the courage to write huge policies when the premium is appropriate; and the discipline to reject even the smallest risk when the premium is inadequate.”

· “An experienced observer can usually detect large-scale errors in reserving, but the general public can typically do no more than accept what’s presented, and at times I have been amazed by the numbers that big-name auditors have implicitly blessed.”

· “What’s particularly entertaining in these books [sell-side research] is the precision with which earnings are projected for many years ahead. If you ask the author-banker, however, what his own firm will earn next month, he will go into a protective crouch and tell you that business and markets are far too uncertain for him to venture a forecast.”

· “If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter. Predicting the long-term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skill in those industries – and seem to have their claims validated by the behavior of the stock market – we neither envy nor emulate them. Instead, we just stick with what we understand. If we stray, we will have done so inadvertently, not because we got restless and substituted hope for rationality. Fortunately, it’s almost certain there will be opportunities from time to time for Berkshire to do well within the circle we’ve staked out.”

3+ questions to the group & group discussion:

· Corporate culture, how important is it? Can we identify strong culture based on the numbers?

· How do we become an experienced observer in a particular field without relying on the financial numbers being presented as is?

· Key metrics and people—how to identify which factors are relevant?


Summary of 1991 Berkshire Hathaway Chairman Letter

What were the details of the letter

· “Look-through” earnings consist of:

· The operating earnings reported on GAAP basis.

· Retained operating earnings of major investees.

· An allowance for the tax of investees’ retained operating earnings.

· Change in Media economics:

· Competition for eye balls.

· “Bob-around” pattern.

· Future earning prospects impact valuation significantly.

· Does not sell permanent holdings.

· Franchise has a product or service that is:

· Needed or desired;

· No close substitute as determined by its customers;

· Not subject to price regulation.

· Existence of such enterprise can be shown from its pricing power and high rates of return on capital.

· Weak franchise vs. Strong business.

· Ownership of See’s has taught Buffett much about evaluation of franchises.

· Brought H.H. Brown:

· Tough business, but outstanding management.

· Distinguish compensation system.

Practical application

· Create a portfolio that will deliver the highest possible look-through earnings a decade from now. This approach is to force an investor to focus on long-term business prospects.

· Focus on economic franchises.

Quotes from the letter

· “Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”

· “If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.”

3+ questions to the group & group discussion

· What kind of checks and balances do we need to have in place to ensure that we follow established principles?

· Investments in USAir (US Airways), Salomon Brothers, and Fannie Mae—What are the mistakes that we could avoid?

· Franchise vs. Business—how do we distinguish between the two?