Warren Watch: Looking for 'fire in the belly' in Detroit

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Posted: Sunday, December 1, 2013 12:00 am | Updated: 1:52 am, Tue May 20, 2014.

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Warren Buffett joined Goldman Sachs CEO Lloyd Blankfein last week in Detroit, the latest city to take part in Goldman's 10,000 Businesses program.

In 2009 the investment banking company pledged $500million toward helping small businesses succeed. Berkshire invested in Goldman during the last recession, and Buffett, the chairman and CEO of Berkshire Hathaway Inc. of Omaha, has been on hand for events at several of the program's 11 cities.

On CNBC, Buffett said the program can help, but it's the people who bring success.

“We can't put the fire in their belly,” he said. “I mean basically, you have to have people that love business, that actually love customers. And then they can learn about accounting, they can learn about renting, they can learn about negotiation, a whole bunch of things.

“But it's like anything else. The key is in who you're working with. And so we work with people that have been successful on a small scale and enable them to enlarge their businesses, and I think over 60 percent have added people six months after they finish the course.”

The program will provide Michigan with $20 million in business loans, education and mentorship.

Questioned on plant closing

Detroit is next door to Windsor, Ontario, and at a press conference, Windsor Star reporter Grace Macaluso questioned Buffett about H.J. Heinz Co.'s decision to close the nearby Leamington ketchup plant, costing 740 jobs.

Berkshire is half-owner of Heinz but doesn't manage it.

Buffett said the displaced workers will get “very generous severance benefits” and the shift in production will open jobs at other plants in Canada and the United States.

“It's really a question of having an unprofitable plant and concentrating production in a more profitable plant. You've seen that in the auto industry,” he said. “But tomatoes are going to go to the plants that have the low production costs when you get right down to it.”

Rob Crawford, president of the union that represents the Leamington plant's hourly workers, disagreed, saying the plant runs three full shifts a day and “has been profitable in the last 28 years that I have been part of it.”

Arm-wrestling Suh

While he was in Detroit, Buffett told the Free Press about his recent arm-wrestling contest with football player Ndamukong Suh at an event in La Vista for the TeamMates mentoring program.

“After toying with him for a few minutes, I pinned him,” Buffett said. “I made him sign a release before we did it, that if I hurt him, he would not sue me.”

Suh, a star at the University of Nebraska before joining the Detroit Lions, also attended Berkshire's 2013 stockholders meeting in Omaha.

Suh invited Buffett to stay in Detroit over Thanksgiving for the Lions' game against the Green Bay Packers. Berkshire, through an investment by Buffett lieutenant Ted Weschler, owns about 40 million shares of Detroit-based General Motors.

Converting from Prudential

Omaha’s Prudential Ambassador Real Estate officially becomes Berkshire Hathaway HomeServices Ambassador Real Estate on Tuesday, in line with similar conversions by other Prudential affiliates in other cities recently.

A national advertising campaign is due to start in a few weeks to boost the Berkshire brand, which is rolling out in cities as franchise holders convert from the Prudential name.

The 400 agents in Omaha, Lincoln and western Iowa are sending notices to their clients, and yard signs at some 1,200 listings will be switched to the new insignia.

Franchise owner Vince Leisey said the support of a national organization is important in such areas as social media and technology, as well as traditional functions such as training and advertising.

“To me, the innovation part is a critical reason why we are more than happy to pay a royalty fee to be part of a national brand,” he said.

Leisey's franchise has tripled its market share to 21.4 percent in the past decade. He signed a long-term franchise agreement with Berkshire's HomeServices division.

Leisey will host a “brand opening” event Tuesday at the company's headquarters at 13340 California St. He said he's already getting “a great response” to the Berkshire brand from agents, home sellers and others.

“I can't imagine a company with any more name recognition,” he said.

Exxon debate

While Buffett was buying $3.7billion in Exxon Mobil shares, Jim Chanos was selling, investment strategist Scott Barlow wrote in the Globe and Mail of Canada.

Chanos is “the most prominent and successful short seller in the world, but I bet even his face went white on discovering Warren Buffett was buying the Exxon Mobil shares he was selling,” Barlow wrote.

Chanos recently described Exxon Mobil as a “value trap,” saying it is doubtful it would sustain its cash flow and profits. Buffett came to a different conclusion.

Who's right?

Chanos' hedge fund is called Kynikos Associates, using the Greek word for cynic. He successfully placed investment bets based on predicting the troubles of Enron Corp., Hewlett-Packard, Tyco International Ltd., Caterpillar Inc. and Chinese real estate developers.

“At the risk of being branded a heretic, I suggest that Mr. Chanos has this right,” Barlow wrote, reasoning that increased U.S. oil production and exports from Iran will hurt oil prices and Exxon Mobil profits.

“Betting against Warren Buffett has been among the worst investing strategies imaginable, so I'm not about to suggest investors join Mr. Chanos in shorting Exxon. But investors should think very hard before blindly following Mr. Buffett this time.”

Simpson's picks

Former Berkshire money manager Lou Simpson recently added to his investment fund's holdings in U.S. Bancorp, United Parcel Service Inc. and Wells Fargo, GuruFocus contributor Holly LaFon wrote for Forbes magazine.

Simpson averaged a 24.7 percent annual gain over 17 years at Geico before the auto insurer was purchased by Berkshire and then continued handling its investments until retiring in 2011 to run his own fund. His initial $1.3 billion has grown to $1.87 billion.

In the latest quarter, Simpson's fund bought 1,865,955 shares of U.S. Bancorp (Berkshire owns 80 million shares), 760,000 shares of United Parcel (Berkshire owns 59,400) and 731,356 shares of Wells Fargo (Berkshire owns 463 million).

Gates on cartoon

The latest episode of “Secret Millionaires Club” features Bill Gates helping the young club members tackle a lack of electricity in an African village.

The program on the Hub online network teaches children about finance and business. Buffett voices his advice-giving character and takes part in a business idea contest for children through the cartoon series.

Gates, the co-founder of Microsoft and a close friend of Buffett's, says in the new episode that low-cost, efficient energy can improve education, nutrition and health in underdeveloped parts of the world.

“Energy is a big concern for everyone these days,” he says.

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