Young Musial was 'superhero' to even younger Buffett

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Posted: Sunday, January 27, 2013 12:00 am

St. Louis Cardinals fan Warren Buffett and Stan “the Man” Musial met several times, the most recent last year when the two were among those awarded the Presidential Medal of Freedom by Barack Obama.

“Stan was my favorite baseball hero from the first time I read about him when he came up to the Cardinals in the fall of 1941,” Buffett said last week following Musial's death at age 92.

Buffett was 11 when Musial started his 22-year major league career, spent entirely with St. Louis.

“He was going 3 for 4 every night,” Buffett told The World-Herald's Tom Shatel recently. “I just got interested in him. I was at the exact right age to develop a superhero. And he never let you down.”

Speaking of baseball, Buffett adapted some baseball logic to investing. Another baseball great, Ted Williams, explained his batting philosophy in a book titled, “The Science of Hitting.”

Just as Williams tried to swing only at pitches he could successfully hit, Buffett believes in waiting patiently for “fat pitch” investment opportunities that stand a good chance of being hit “out of the park.”

That's a good concept, Buffett wrote to his shareholders in 1997, but requires discipline. “Just standing there, day after day, with my bat on my shoulder is not my idea of fun.”

Ahead on bet

Halfway through his 10-year, $1 million charity bet with a hedge fund, Buffett moved into the lead last year, Carol Loomis of Fortune magazine said in her official wager update.

Buffett picked Vanguard's Admiral mutual fund, which mirrors the Standard & Poor's stock index. Protege Partners of New York City picked five unnamed hedge funds.

Buffett argued that expensive fund managers don't do as well, over time, as the overall stock market. Protege, including partner Ted Seides, vowed to beat the market.

Since 2008 — when both investments dropped during the financial crisis and Great Recession — Buffett's choice is up 8.69 percent and Protege's fund-of-funds is up 0.13 percent, Loomis wrote.

It's the first time Buffett's choice has been in the lead and the first time both have risen above their initial 2008 values, climbing back “out of the ditch” created by the 2008 economy, Loomis wrote. During 2012, Buffett's index fund gained 15.96 percent and the hedge group gained 6.46 percent.

Loomis also wrote that the winning charity likely will get a bonus because the bond bought by the two bettors for $640,000 already was worth nearly $1million. So they sold the bond and bought Class B shares of Berkshire Hathaway, which will go to the winning charity when the bet ends on Dec. 31, 2017.

Even if the Berkshire stock loses value, Loomis wrote, Buffett guarantees a $1 million payment. If Buffett wins, Girls Inc. gets the stock. If Protege wins, it's Absolute Returns for Kids, which helps children worldwide.

5K run for all

Sundays after Berkshire Hathaway Inc. shareholder meetings are typically quiet, especially around the CenturyLink Center in downtown Omaha after the Saturday meetings adjourn.

But this year, 10th Street outside the convention hall is likely to be hopping by 8 a.m. on Sunday, May 5, thanks to Berkshire's Brooks Running Co.

Brooks will stage what it calls its first “Invest in Yourself” 5-kilometer run (or walk), aimed at attracting thousands of fit shareholders and anyone else in Omaha who is 7 or older and willing to pay a $25 entry fee.

Proceeds will go to a charity, which Brooks is still arranging. The Omaha World-Herald, also owned by Berkshire, is a co-sponsor.

Buffett is slated to fire the starting gun and crown winners at a “finish line festival” from 8 a.m. to 11 a.m., an outdoor event near TD Ameritrade Park. Vendors for the festival, as well as runners and volunteers, can sign up at investinyourself5k.com.

Buffett's edge

Buffett's past investment techniques may be more useful to the average investor than his high-dollar practices today, Chris DeMuth Jr. wrote for SeekingAlpha.com.

DeMuth, a partner at Rangeley Capital Partners of New Canaan, Conn., writes that in 1969 Buffett was an “arbitrage specialist” who exploited “workouts” such as liquidations, acquisitions, reorganizations, spinoffs and other business events that were reported publicly, mostly in newspapers.

“Buffett's edge wasn't that he had better information than everyone else. It was that he understood that in these 'workouts' held the potential for significant mispricing by the market, where the market price of the security no longer accurately reflected the true value of the underlying asset,” DeMuth wrote.

Buffett's sophistication in spotting such bargains meant he could cash in while others hesitated. DeMuth cites Buffett's discussion of Commonwealth Trust Co. in his 1959 letter to investors. The bank's stock was selling for about $50 while its intrinsic, or true, value was at least $125.

The market price was low because the bank wasn't paying dividends, and the low price made it a potential takeover target. Buffett bought enough of its stock to influence merger proposals.

While average investors might not be able to buy as much stock, DeMuth wrote, they do stand a chance at finding such mispriced companies, even though Buffett himself has said they are “very difficult to find on the right terms.”

“Buffett is a winning card player and he plays with an edge. His investment style has evolved over time as his edge has changed, but he always maximizes his edge,” DeMuth wrote. “Make no mistake, what Warren Buffett does is neither simple nor easy.”

In the end, DeMuth recommends buying Berkshire shares “to invest alongside Buffett.”

Excusez-moi

If you've ever had a natural gas leak, you'll know what folks in northern France were smelling recently, thanks to a Berkshire subsidiary.

The Western Mail newspaper of Cardiff, Wales, reported a “giant stink bomb” floated away from a chemical factory in Rouen, France, owned by Berkshire's Lubrizol subsidiary.

The harmless but smelly cloud was mercaptan, also known as methanethiol, a chemical that smells like rotten cabbage and is added to natural gas to alert people to escaped fumes. The cloud drifted into the Paris region, the Mail reported, prompting calls to emergency services but no damage or illness.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

Contact the writer:

402-444-1080, steve.jordon@owh.com

twitter.com/buffettOWH

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