Roger Lowenstein wrote a best seller on Buffett, and is an expert on pensions, and the financial crisis. He was asked to testify before The Financial Crisis Inquiry Commission-Roger Lowenstein, Author • MP3. We discussed Warren Buffett, Seth Klarman (Lowenstein is a close friend), pensions, and the financial crisis.
Below is Lowenstein’s bio and the interview.
Roger Lowenstein, a best-selling author, has published five books;Buffett: The Making of an American Capitalist, When Genius Failed, The End of Wall Street, While America Aged and Origins of the Crash, . Mr. Lowenstein is a contributing writer for The New York Times Magazine and a columnist for Bloomberg. He frequently contributes articles and reviews to those and other publications. He is also a director of Sequoia Fund. His father, Louis Lowenstein, was an attorney, Columbia Law School professor and author and a noted critic of the financial industry.
Below is our interview.
Buffett named Greg Alexander as one of his top three investors . I know Greg Alexander keeps a low profile; do you know him from Sequoia Fund?
I know Greg. I think Warren is right. He’s a great investor, but as Sequoia director I am not going to comment on Greg personally.
Buffett also named Seth Klarman as one of his favorite investors. Klarman recommended reading all your books, and I think you interviewed him. Do you want to comment on Seth?
He’s a great investor. Seth walks the walk. It’s hard to think of someone does a better job of actually carrying out the discipline of looking for value wherever it is. Seth doesn’t wake up in the morning and say, “I need more exposure to foreign markets, domestic markets, stocks or bonds”; he looks for future streams of cash that are underpriced. He has the total courage of his convictions, and he goes with his judgments regardless of what others may think. He’s very bright. One way that he differs from Warren is that he built an entire organization which is first class. I don’t know how many people Klarman has at Baupost, more than 100 people I believe, but Buffett as an investor has always been a lone ranger.
Despite running a massive company, if it’s a quiet day, it’s just Warren when it comes to investing. On a busy day, it’s Warren, Lou Simpson before he retired, and now Todd Combs. But Seth has built an entire organization that is uniquely skilled, professional, disciplined, and ethical. it’s an entire, investing organization and I think that’s one way in which his model has differed from Warren’s.
While on the topic, do you by any chance know Buffett’s third favorite investor Li Lu?
No, I do not know him personally.
You wrote your bestseller in 1995 on Warren Buffett, Buffett: The Making of an American Capitalist; do you think that Buffett as a person, an investor, or an image has changed since you wrote the book?
His image is much more widespread. I wrote the book in 1993 and ’94, and then it came out in ’95. In ’91-‘93, when I was still doing research for the book, he was remarkably unknown. The incident that made me want to write the book was when he got involved with Salomon Brothers, which was widely covered in the news. Prior to that he was really an unknown as far as the average American was concerned; even after that, his story and approach still weren’t known. I think that has changed by virtue of the country’s increasing fascination with Wall Street, by virtue certainly of his increasing wealth, and also by virtue of the fact that he’s become much more willing to go on shows like CNBC. He’s become a celebrity for both value investing and for his ethical approach to business. When I wrote the book, there were touches of celebrity but only touches.
I don’t think he has changed really much at all. He is older (we’re all older). The biggest thing is that with his business, his company has moved much more from traded stocks to wholly owned companies. Buffett gave the figure that he owns 60 or so companies. That was already apparent when I wrote the book (the shift into insurance and away from stock picking). There was a column in the press recently that took a shot at him and stated that Berkshire Hathaway has recently been gaining book value at a slower rate than the S&P. That was an absolutely uninformed piece of writing, because 99% of what happens to book value at Berkshire has nothing to do with his stock picking. It’s dependent on the change in value in those embedded companies which he isn’t going to trade year in and year out. So long term, it’s a reflection on his skill in acquiring companies and overseeing their managers. However, if Berkshire’s book value goes up more than the S&P does, it doesn’t mean Buffett had a great year picking stocks any more than it means he had a bad year picking stocks if book value underperforms the S&P.
Anyway, those changes have been evolving for a long time. The biggest change that has happened since my book (and I actually put out a new edition with an afterward to reflect it) was that he decided to plan what to do with his shares and his estate, and to give it to the Gates Foundation. I thought that was a major decision and a lifecycle step. His plans for succession have continued to evolve; as I think that they will continue to evolve. Otherwise, I view it as the same company. It’s interesting to see his branching into utilities, energy, and rails. That’s new and it’s almost a return back to his roots at the same time. He’s almost going back to his bread and butter, where he is the “Ben Graham investor” of buying industries with lots of fixed assets.
Could you touch on Pensions? I recommend your book While America Aged to everyone. Throughout it, you were way ahead of the curve, and you were very balanced in your approach. In your book you start by being fairly anti-union and seem to lean to the right, but then at the end you criticize San Diego for under taxing its citizens. It was very nice to see the balanced approach; it’s very hard to find these days. Nowadays, it is almost like color war, blue versus red.
(Laughter) Thank you! That flows from the belief that there is no right amount when it comes to pensions. I believe that there’s no right amount that a teacher should be paid. That’s a political issue as voters have a right to well-paid teachers and wonderful schools, and they also have a right to lousy teachers and lousy schools if that’s what they want. However, the government does not have the right to approve benefits and not fund them.
The point of the book was, if you want pensions, then fine. Fund them. If you don’t want them, then cut them out. But, you can’t take the “head in the sand” route. So I’m indifferent as to whether you raise taxes to fund them or whether you cut back on them if you still think you can attract teachers, firemen and so on. But, what you can’t do is to try to have it both ways and award the benefits and then just pass the buck. That’s bad math, and regardless of being A republican or democrat, it just doesn’t work.
I’m glad it’s widely received. The issue has become much more front and center. You don’t want to be too late and sometimes you don’t want to be too early either when it comes to writing a book on a subject. You never know when these things will become hot topics. You may begin to think “When will the time come were people see this topic’s importance?” Then suddenly, something sparks it. For the pension issue, it seemed like the financial meltdown sparked the collapse in state budgets and suddenly the voters are feeling it. They’re feeling it either from the level of services declining or because taxes are going up. The rubber is finally hitting the road. Many are seeing people in the public sector retiring in their mid or late 50’s in some cases, while the rest of us in the private sector are working into our mid or late 60’s. Then additionally, some basic things seem way out of kilter, like we are laying off teachers. So, you can’t predict these things, but at least the issue has very much come into the public consciousness now.
Do you have any thoughts on the chaos in Wisconsin?
Yes. I think the state houses are right to try and trim costs and try to bring some common sense to benefits. It seems that they want to align the