Warren Buffett, Lebron James, & the Cleveland Cavs

Warren Buffett, Lebron James, & the Cleveland Cavs

First off, congratulations to the Cleveland Cavs for winning the NBA Finals on Sunday night. It would be hard to imagine a more exciting Game 7 (and I think we were definitely owed an exciting game after a postseason that featured blow out after blow out).Warren Buffett probably enjoyed the game too.

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Even though Buffett has no real connection to the city of Cleveland, he was probably rooting for the Cavs to win. Here’s why:

Dan Gilbert

Warren Buffett is good friends with Quicken Loans founder and Cleveland Cavs majority owner Dan Gilbert. In 2012, Gilbert agreed to join Buffett’s Giving Pledge, pledging to donate most of his wealth to charity.

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In 2014, Buffett’s Berkshire Hathaway sponsored and insured Quicken Loans’ “Billion Dollar Bracket Challenge,” which offered a chance to become a billionaire to anyone who could predict all 64 winners for the NCAA Division I Men’s Basketball Tournament (the odds of predicting a perfect bracket are somewhere between 1 in 4.3 billion and 1 in 9.2 quintilian, depending on who’s doing the counting).

The ties between Buffett and Gilbert are also business related.

Just last month, Buffett offered to be a potential financing partner to support Gilbert’s bid to acquire Yahoo. Buffett:

“I’m an enormous admirer of Dan and what he has accomplished in Quicken Loans?. Yahoo is not the type of thing I’d ever be an equity partner in. I don’t know the business and wouldn’t know how to evaluate it, but if Dan needed financing, with proper terms and protections, we would be a possible financing help.”

Buffett, through Berkshire, previously provided financing to investment firm 3G Capital for its takeovers of Heinz and Kraft.

Additionally, Berkshire subsidiary Vanderbilt Mortgage Finance Inc. (which provides financing for customers of other Berkshire subsidiary Clayton Homes) buys traditional home mortgages from only a few institutions – one of which is Gilbert’s Quicken Loans.

LeBron James

Warren Buffet is also friends with NBA superstar LeBron James and has been something of a money mentor to him.

In an interview with NBA TV, Buffett described LeBron as “remarkably mature,” being “plenty smart about financial matters,” and saying “I was impressed with him right from the moment I met him.”

As far as LeBron’s business sense, Buffett continued pouring on the accolades. He said, “LeBron’s not really talkative, he’s savvy,” continuing with, “he talked smarter about business deals than plenty of MBAs I’ve met … when I talked with him first, he was 21 then… He knew a lot more than I did when I was 21.”

Buffett has also given LeBron James some very specific financial pointers (which apply to everyone!):

“Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund. Somebody in his position ought to have a significant cash reserve.

Athletes generally tend to get promoted by people with restaurants and real estate. Everybody’s got an idea for him and, usually, the simplest is the best.”

Buffett also said LeBron James should invest primarily in American companies:

“Owning the United States at a decent average price bought over time, you really can’t go wrong with that.”

Although LeBron’s a 3x NBA champion, 3x NBA Finals MVP, 4x regular season MVP, and 12x NBA All-Star, he is definitely the starstruck one between the two:

“I sent an e-mail about this to Warren Buffett. I’m a kid from Akron who lived in poverty for a long time, and I sometimes send financial statements to one of the richest guys ever. It’s kind of scary. I’m like, ‘Why is he talking to me?’

What about LeBron James coaching Buffett on the basketball court? Buffett once joked:

“We went up for a jump ball one time and he got it, went the length of the court [and] dunked it just as I was starting to jump.”

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…

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