Legendary investor Warren Buffett, in his much-anticipated annual letter
to Berkshire Hathaway shareholders, called bankers, lawyers and financial consultants “a lot of mouths with expensive tastes” who only lure unsuspecting investors into ‘a fool’s game.’
He said that “the Street’s denizens … are always ready to suspend disbelief when dubious maneuvers are used to manufacture rising per-share earnings, particularly if these acrobatics produce mergers that generate huge fees for investment bankers.”
“Money-shufflers don’t come cheap,” he claimed.
Aside from a tone of general disdain for bankers, lawyers and consultants, he had direct investing advice: Stop pouring money into expensive, high-end money managers.
“Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool's game," Buffett wrote.
“Investment bankers, being paid as they are for action, constantly urge acquirers to pay 20 percent to 50 percent premiums over market price for publicly held businesses. The bankers tell the buyer that the premium is justified for ‘control value’ and for the wonderful things that are going to happen once the acquirer’s CEO. takes charge,” Buffett wrote.
“A few years later, bankers — bearing straight faces — again appear and just as earnestly urge spinning off the earlier acquisition in order to ‘unlock shareholder value.’ Spinoffs, of course, strip the owning company of its purported ‘control value’ without any compensating payment.”
The New York Times supported Buffett’s allegations. “There are countless examples of the build-it-up-and-tear-it-down phenomenon, most recently illustrated by Hewlett-Packard, which grew through mergers and now plans a series of spinoffs,” Andrew Ross Sorkin pointed out.
However, star CNBC commentator Jim Cramer reminds all investors to always question authority – even the much-loved Oracle of Omaha.
"Clearly something's gone awry in the business world if we can praise this one man for everything he does, and yet every other chief executive feels shackled into being nothing like him," Cramer said.
MarketWatch’s Mark Hulbert also points out that while Buffett’s letter gets all the limelight, other investment letters also are worthy of similar investor attention.
“Of the 200 investment letters whose performance is monitored by the Hulbert Financial Digest, no fewer than 10 have outperformed Buffett over the past 15 years — since the top of the Internet bubble, in other words,” Hulbert wrote.
“In addition, each of those 10 can boast of something else besides superior performance: They are published at least monthly, if not more frequently. None of them makes you wait a whole year, as Buffett does, to get updated insights.”
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