Mario Gabelli, Gabelli Funds; and Douglas Kass, Seabreeze Partners Management, debate the state of Berkshire’s business. This is a very interesting debate/conversation (quite gentlemanly one). The video of the debate between the two men can be found below along with a computer generated transcript.
Mario Gabelli versus Doug Kass on Berkshire Hathaway
thousands of buffett faithful are in for the shareholder 34eg. they will be here in this very arena tomorrow. a lot of questions need to be answered about the state of berkshire’s business. joining us right now is mario gabelli and doug kass, sea pwraez founder and president. it’s a pleasure to have you here. it’s great to be with you. mario, you come out every year. you have been coming for a long time. no, only 10 or 12 years. and that’s a long time. it is. okay. you have been coming longer than i have, shall we say. okay. why do you do it? well, it’s partly toreinforce what we do. to thank warren for all he did for per perch situating graham, dodd. and always to get ideas and meet a lot of interesting people like doug. doug, we’re thrilled you’re out here. they changed the panel. they wanted a bear on the stock.buffett put out a call. you were chosen as the person sitting here on sta ask men’s of buffett and munger. exciting. first of all, why are you here? what are you thinking? why did you apply to be the official bear? first of all, i’m very excited. i feel like a journeyman pitcher facing my cousin sandy koufax, hall of fame pitcher from los angeles dodgers. you can’t hit curve balls. what makes matters worse, look at the batting order. munger at 390, warren buffett in cleanup, who has the highest batting average in the history of major league finance. but i will throw a couple good curve balls at them. one number, 19.7% compounded 40 years. that’s the number you have to tell everybody.remarkable. well, wait for some of my questions. it addresses that. how did you prepare? mario and i have preparing and researching stocks a couple of years. at least five years. but since warren and berkshire have been under a microscope forthree or four decades, i had to do a deeper dive. and it was almost as if i was an investigative reporter. unfortunately i had bad ground with writing a book called citibank in the ’70s. i reread everything that loomis has written on both subjects. but i went far deeper. i have come up with spicy research for my six or seven questions. all you had to do was read the annual report for the last 20 years. i have been reading 40 years. too bad you didn’t own it. that’s why i have a rented apart and you have an estate in greenwich. i grew up two miles frommarshall. you pronounce it different than anyone in the bronx would. you did used to own berkshire? i did. this is the second time i have been shorted. i have been shorted a month and a half. 104.38 to be exact. that’s the b stock. i wrote 11 reasons to short berkshire hathaway. stocks fell 40%. so i did well that time. and you got out? yes. and the reasons you’re shorting it, does it go back to the same list of 11? i think we have to stay tuned to the annual meeting tomorrow to discuss that. mario, you’re here. you’re not short stock. we started buying when i first started a mutual fund in 1985. still own it. cost 3,000. it’s 160,000. i remember, becky, in february or march of 2000 when it collapsed, dotcom was booming, they drove stock down to$40,000. what’s the point in buying and selling, paying a tax, if ibelieve the next 10 years he can grow intrinsic value and buysthe stock back at 20%? so book is $130,000 more or lesstoday. not at the end of the year. it was 114. at the end of this year. so that will grow 10%, not 20%. but still make a terrific return for our clients. there have been massive clients about the buy and hold strategy the last decade or so. particularly a lot of the big dow components didn’t go up. you saw their earnings go up significantly. but the stock prices have been languishing for a lot. it’s been a different story recently. we have watched the dow continue to go hit new highs. yeah. i think that’s what etfs, algo trading, individuals that have captured the new york stockexchange, dominating the knowledge base. risk on, risk off.everyone has different ways of making money. it’s not our style.it’s not warren’s style or the whole array that have come through the graduate school of business like warren. it’s just different.but do you think the buy and hold strategy is one that is going to be back en vogue? it’s the notion that someone always comes one a new flavor of the decade. whether it was in the 1980s with o’brien. protect your down side by buying puts. ’90s it was something else. trading is really terrific. it’s like talking about plane crashes, other dynamics that everybody likes to comment on. it’s the flavor of the day. doug, i know you’re not giving away your thesis on why you are short berkshire. when it comes to buy and hold, do you think it’s write, this is a time when investors are getting serious about it? some have gotten so badly burned by the last several crashes. i think generally speaking mario is correct. it is what warren calls the gravity of markets and stocks. they tend to rise over time. but i would say at this point in time today in many way toss me is similar to some elements, obviously not all the elements of 2007, 2008 where we have seen stocks move around the globe relentlessly higher in the face of economic challenges. does that suggest you think we’re going to see a crash again? no. it recreates reward versus risk has deteriorated dramatically. as we say in the value world it has changed dramatically so. the notion of i having a portfolio of a dollar, do i sell what i mean or buy an etf and go short for a portion of it. that’s a different dynamic. i buy insurance on my house, and it’s never burned down and i lost a lot of money. but i need to anyway. when you look at stock market versus other asset, people say it looks incredibly cheap it is now corroded, before bernanke and draghi gets in the game. that liquidity is showing up exactly where they want it.financial assets, housing and currency. i agree obviously with mario. you can distill where i have been wrong where i turnednegative is that we didn’t realize that the federal reserves mandate would change from unemployment and inflation to the dow jones industrial average and the s&p 500 in that state assembly. well, on my point of view, the margin of safety is not as bare today. you’re at a four foot level. you can get hurt. u wet above the grouped. there’s some potential damages. again, to paraphrase warren, there aren’t that man cigar butts left around. people are not looking where they are. you can still find really interesting companies. it’s a tough time of year. annual reports. and the market has gone up despite lousy earnings.mario, thank you very much for joining us. doug, thank you.