Dan Sweet

This is the eighth in a series of twelve posts. The introduction to the series is here. By way of review, these are my notes of Warren Buffett’s responses to questions from Notre Dame and Stanford MBAs on October 9. 2007.

Do taxes in the US favor the rich?

Look at line 63—tax due.  Compare that to taxable income.  Berkshire Hathaway office average is 33%.  I follow the rules and pay 17% on my 46 million.  Payroll tax quits at 90k.  I bet that the average member of the Forbes 400 pays less than their receptionists.

50:1 odds against being born in the U.S.  This market system we have has made me “ungodly rich.”  U.S. Congress plans my taxes and treats me better than laborers.  Deck is stacked against the have-nots.  There are no longer any good opportunities for people with an IQ of 80.

The rich will always have lobbyists.

We have the opportunity to influence things in a democracy.

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I took a trip down to Omaha in October of 2007 to meet Warren Buffett with a few of my Notre Dame MBA classmates.  We joined a group of Stanford MBAs and spend the morning in conversation with Warren Buffett.  He is a class act as these pictures illustrate.

He pulled out his Notre Dame “INVEST LIKE A CHAMPION TODAY” sign to welcome us:

He took us out to eat at one of his favorite restaurants:

He posed for pictures with us:

And he signed my copy of The Intelligent Investor (Wow, I’m a nerd):

Anyways, it was an amazing experience and I want to share some of the content from the trip so I’ll be typing up a series of posts here to archive the notes I took in my notebook.  I’ll write his responses to our questions in his voice; however, some responses will be paraphrases and some will be direct quotes.  I don’t know which are which so I won’t be differentiating.

Theses are the questions that I’ll be sharing Buffett’s response to:

1 – What are your thoughts on investing in China?

2 – Do you find any of the insurers in China attractive?

3 – Can you comment on the challenge presented by Berkshire’s size?

4 – How do you perform due diligence? What do you look for in management?  What question do you find most useful when meeting with companies?  Is it true that Berkshire will never sell a good company?

5 – How do you decide on an appropriate premium over book?

6 – You’ve been critical of hedge funds in the past.  Didn’t you run a fund with a similar structure before?

7 – What are your personal goals for the next 5-10 years?

8 – Do taxes in the U.S. favor the rich?

9 – Is the Fed doing a good job? (October 2007)

10 – Which railroads do you like and why?

11 – How do you feel about derivatives?

12 – What do you see as the best investments for young investors now?

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This video on Youtube is amazing.  Could also be titled-“why you should never make predictions on TV.”  Ten minutes of pure talking head awesomeness!

Memorable moments occur at these points:

2:15 “I’ll bet you a penny!”classic! nothing like the I’ll bet you a penny line to show you are serious!

2:40 “in a normal market home prices will rise about 10%”

3:32 “what artificial lending standard are you talking about!?!” (voice dripping with scorn)

4:10 Ben Stein “financials are being given away…its as if nuclear war has struck the financials” Dow @ 13k

5:19 Ben Stein “sub-prime is a tiny tiny blip”

6:10 Peter Schiff “the fundamentals are NOT sound”

6:28 Ben Stein “Merrill is astonishing well run, might as well be putting it in cereal boxes and giving it away aat these prices” Merrill @ $75

7:25 Ben Stein “their earnings are HUGE, what are you talking about?!?”

8:50 “I like Washington Mutual, I know we are catching a falling knife”

9:20 ” Dow will go to 16k easily”

I am a finance guy.  I love a bargain.  Hence I use Slickdeals.net.  For those not familiar, the site is basically a forum of bargain shoppers who share “slick” deals that they find.  The deals are all user generated and the very best bargains are promoted to the front page of the site.  In recent months I have noticed an increase in the number of details that are being promoted to “front page” status.  Below is the data from June to November comparing 2008 vs. 2007:

Have the number of extreme retailer markdowns dramatically increased?

My first thought is that maybe the traffic at Slickdeals has grown significantly in the last year and this has led to a larger user base that is contributing more deals.  More deals means more “front page worthy” deals.  However, a quick look at Alexa.com for the traffic stats over the last 15 months, reveals that except for a spike for holiday shopping, traffic actually appears to be falling.

The only remaining explanation would be that the standards for promoting a deal to the front page may have been reduced.  This is a possibility and not something I have any insight into.  Based on my limited experience with the site, I know that getting a deal promoted to the front page is considered very desirable.  Users seems to keep a close eye on the mods and will often complain if a deal doesn’t seem “front page-worthy.”

ASSUMPTION: Standards for front page deals haven’t fallen.
CONCLUSION: Retailers are getting desperate.

n=1  Perry Ellis announced this morning that they were cutting their forecast from $0.50 per share to $0.30 per share based on the level of retailer markdowns they were seeing.

I expect they aren’t the only company seeing retailers take these markdowns.  I’ll be keeping an eye on Slickdeals as a leading indicator of retailer markdowns.

I’d love to hear any thoughts on this analysis.  Comment below!