Monthly Archives: May 2011

“It Is The Judgment That Counts” — Michael Price

Michael Price was interviewed in the Spring 2011 issue of Graham and Doddsville, an investment newsletter from the students of Columbia Business School.

Mr. Price began his career in 1973 when he joined Max Heine at Mutual Series.  In 2001, he left the firm to begin his own fund, MFP Investors, LLC.  He earned a Bachelor in Business Administration from University of Oklahoma.

G&D:  You have been involved in distressed and special situation investing for a long time.  How has your strategy evolved and what is the mix today?

Michael Price (MP):      It has evolved indeed.  As a small mutual fund at Mutual Series, we had no say.  We had small amounts of stock.  We could not influence proxy fights.  We always had value and we always had situations involving corporate control.  When the funds got bigger, we realized that we could use our significant influence for the betterment of our position, and that of all the other shareholders.  We did that for a while, and then I got out of the fund business.  Now I am back to a small, family office kind of fund, where we don’t have that clout, but we try and influence directors and officers just because of our point of view that we think is well thought out.  That is how it has evolved.  We don’t take controlled positions.  We don’t try and force things to happen anymore.

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Links of Interest – May 6, 2011

Michael Price on Markets, Investment Strategy – Price is insightful, enlightening and opinionated – as always. Probably worth watching twice!

FPA Crescent Fund Q1 2011 – Good analysis of CVS.

Steinhardt Talks of Buffett’s “Snow Job” – A provocative opinion that challenges the status quo. Beware of confirmation bias.

Great Blog: tompeters! – Not an investment blog, but tons of good stuff.

Great quote:

“Be kind, for everyone you meet is fighting a hard battle.” – Plato

Notes from the 2011 Berkshire Hathaway Shareholder Meeting

My friend Jyotisko Sinha attended the Berkshire meeting last week and has kindly agreed to share his notes. Jay is a very bright, passionate MBA candidate at the Fisher College of Business -The Ohio State University who has caught the value investing bug in a big way. He is also a formidable networker: on his first trip to Omaha he met Charlie Munger, Mohnish Pabrai, Tom Gayner, Steve Markel, Andrew Kilpatrick, Jeff Benedict, Ron Olson and Peter Buffett!

The David Sokol Scandal and Recency Bias

The recent discussions about how the David Sokol matter reflects on Warren Buffett and Berkshire Hathaway have been largely impacted by the recency effect. Wikipedia defines this as, “The tendency to weigh initial events more than earlier events.”

Because of the scandal, Berkshire has been the subject of a lot of criticism that it is operated too loosely and that it lacks the corporate governance structure of other large corporations.

Does running Berkshire Hathaway in a fashion that is light on rules and regulations provide cover for those who wish to get away with something? Probably. Does running a company with tons of rules and regulations stop people of mal-intent from carrying out their malfeasance? Sometimes, but not always. And although the desired outcome of extra rules and regulations is less than guaranteed, that it will have unintended consequences and impact productivity is virtually assured.

People quickly forget the enormous benefits that Berkshire has enjoyed by Buffett running it in a decentralized, lean fashion. This unleashes human potential in the same way that it has driven unprecedented productivity and wealth in the United States. If you have smart, talented people, the best thing you can do is to get out of their way.

This lack of structure has provided a platform to fuel the entrepreneurial drive of Berkshire’s scores of talented, proven managers and has provided Buffett with the time to do what he does best: allocate capital. Shareholders are far richer for it.

Is Berkshire perfect? No. But, its many virtues should not be obscured by this most recent incident. Lessons will be learned from it and necessary corrections made. This isn’t Buffett or Munger’s first rodeo.

One lesson for us is to once again observe how the media is driven by recency bias. The good news is we don’t have to go there. We are free to ask better questions and seek a broader perspective. It is wise to be on guard against the many cognitive biases that can negatively impact our judgments and actions.