Quickly Revisiting Name Brand Investors...
About 8 months ago, I released research (as part of the Asset Securitiziation Crisis series) as a summary overview of Wells Fargo (Doo-Doo bank drill down, part 1 - Wells Fargo) and the forensic analysis of the same, Doo Doo 32 Bank Drill Down 1.5: The Forensic Analysis of Wells Fargo. For those that don't know, Warren Buffet is the largest shareholder of Wells Fargo. When my analysts and I came up with the short list that included Wells, the first thing to pop into my head was actually included in the introductory post. I will excerpt it here:
"Well, the first bank on the drill down list will also be 2nd of the banks that I will deliver a forensic analysis on (the first was PNC Bank). That bank is,,, (drum roll in the backgroud, crescendo.... I know some of you hate it when I do this........) Wells Fargo! I can hear a few of you naysayers cackling behind your computer screens as I type this. Wells Fargo is a big name brand bank (cackle, cackle)! Wells Fargo has Warren Buffet as its largest investor (cackle, cackle)! Wells Fargo this and that and blah, blah and (cackle, cackle).... All I can say is, beware of name brands (I actually felt compelled to address this in earlier posts). I have made more than a couple of dollars benefiting from name brand hubris and smaller minded investors (this easily includes big institutions as well as little retail investors) who would rather be told what to do than read a balance sheet! Time will tell if I am right or not on Wells Fargo, just be forewarned - several of the banks on teh Doo-Doo 32 list have already taken a trip to the confessional! The score card for the credit crisis to date, Reggie Middleton - 10, big name brand investors - 0 (not to toot my own horn, I'm sort of a modest guy and I know I have a big mistake/loss coming soon, it just isn't going to be this one).
I actually have a lot of respect for Buffet, though. Hell of a fundamental investor and cash flow king, and charming public persona as well as being modest (at least he's got me beat). My appreciation differs from that of many, though. His investment track record is quite impressive for it stands the test of time as consistent. As a smaller, unknown investor, he was the most impressive, but now he is an icon and his very words and even a scent of investment from him actually moves markets. Even though he has a much larger capital base to work from (which makes it harder to generate large proportionate returns), his influence can be confused for investment acumen. All in all, he is one to be admired, but the investment results stemming from alpha have to be seperated from the ability to manipulate and move the market (unless that actual ability can be defined as alpha - topic for another day). We all make mistakes though, and Wells Fargo is a mistake waiting to happen for anyone invested in it, including and particularly Mr. Buffet due to the size of his investment. Let's walk through this company as I see it. Of course, since Wells Fargo failed to cooperate with me in releasing their numbers, I used statistical data to back into their probable delinquincies where they weren't directly available from their public filings."
Due to Mr. Buffet's heavy investment in industrial, manufacturing, insurance and banking stocks, he has had a very rough two years. The recent deterioration of stocks in the Berkshire portfolio happen to include a $4.5 billion drop in the value of its Well Fargo holdings since December 1. Wells has lost half of its value in under two months. This translates into a 2x to 4x on my bearish Wells Fargo positions.
Name brands that I have trounced and made significant money off of in this crisis do not end with Mr. Buffett (see BoomBustBlog Research Performance for 2008). There is also Wibur Ross (Assured Guaranty ), Citadel/Ken Griffin (homebuilders/Beazer), Warren Buffet (Wells Fargo), Joseph Lewis from the UK (Bear Stearns), Legg Mason and Citibank (the homebuilders), UBS and Warburg Pincus (MBIA and Ambac), Carl Icahn (WCI Communities), nearly all the ex-bulge bracket banks (see Blog vs. Broker, whom do you trust!), and the list goes on for some bit. This is not to say that I am so smart. It is stated to illustrate that people are people, and we are all wrong sometimes. As a matter of fact, I have shown that many name brands have been consistently wrong for almost two years straight. My track record for the last 8 years easily bests the name brands that I just mentioned, yet no one would have ever heard of me if I didn't write in this blog. Let this be a lesson to you - do not follow an investor or any personality/pundit simply because they have a branded name. Do your own homework/legwork and create your own brand. We are all human, and chances are the best investors are most likely individuals that you have never heard of and probably never will hear of.
See my past name brand commentary: Are you hooked on name brands?