CNBC: "Even Buffett Isn't Perfect" One Man Makes His Case Against The Oracle

Posted By:Gloria McDonough-Taub

Topics:Warren Buffett | Media | Print Media

Sectors:Retail

Companies:Berkshire Hathaway Inc. | Berkshire Hathaway Inc. | Berkshire Hathaway Inc.

I have this guest blog from author Vahan Janjigian who wrote “EVEN BUFFETT ISN’T PERFECT: What You Can – and Can’t – Learn from the World’s Greatest Investor" who says we can learn a lot from the mistakes made by the Oracle.

Even Buffett Isn't Perfect

Jim Croce said not to tug on Superman’s cape, spit in the wind, or pull the mask off that old Lone Ranger.

He might have added, “Don’t criticize Warren Buffett.”

Indeed, dozens of books have been written about Warren Buffett, but none has been willing to criticize the investment guru in any way—until now.

This is exactly what I do in my book, “Even Buffett Isn’t Perfect.”

Buffett’s track record certainly proves he is one of the world’s greatest investors.

That record gives him a great deal of credibility both inside and outside the investment world. He has even advised politicians, including President Barack Obama and Governor Arnold Schwarzenegger, about economic matters and taxes. Unfortunately, Buffett often promotes an agenda that makes for bad policy and is contrary to investors’ best interests.

Buffett’s call for higher taxes on the so-called rich is a prime example. He says, “People like me should pay more taxes.” The truth, of course, is that there are very few people like him. Unfortunately, he is talking about raising taxes on those who might be doing well, but are not necessarily rich. Yet these are the very people who are already too heavily taxed.

According to the latest available (2006) IRS data, the top 5% of income tax filers accounted for 37% of the adjusted gross income, yet they paid 60% of all federal individual income taxes. Furthermore, more than 40% of Americans got away with paying absolutely no federal income tax at all. While a reasonable argument could be made that we have a problem with income distribution in this country, it defies logic to suggest that the “rich” are not paying their fair share. The facts prove otherwise. Since these are also the very people who do most of the investing in this country, pushing their tax rates even higher is likely to depress economic growth and elevate unemployment.

Buffett also favors higher estate taxes on the so-called rich. He believes everyone should have to earn their own way. Buffett believes people who are lucky enough to be born in America and lucky enough to grow wealthy should not be allowed leave their money to their heirs. He believes the government should get this money so that everyone in society can benefit from it. Buffett, however, would be more convincing if he practiced what he preached. Instead, he is taking advantage of a tax loophole

by donating the bulk of his estate to the Bill and Melinda Gates Foundation and to foundations run by his children. While this is a magnanimous gesture, it effectively keeps the money out of the government’s hands.

I also point out a number of other policy matters where the views of America’s greatest investor fall short. These include corporate governance, earnings guidance, and the expensing of stock options. In addition, I warn that it is naïve to believe that ordinary investors can invest like Warren Buffett. While anyone can follow a value-oriented buy-and-hold investment strategy, only a few can purchase entire companies or employ exotic instruments such as PIPEs (private investment in public equity). In the chapter titled “Never Marry a Stock,” I even question the wisdom of buy-and-hold investing, a strategy we now know has decimated the portfolios of so many investors.

Furthermore, I discuss a number of decidedly non-Buffett-like investment strategies that academic research has shown to be profitable. For example, buying growth stocks that exhibit strong price and earnings momentum is a strategy that has consistently beaten the market over investment horizons of six to 18 months.

In short, this is a Buffett book like no other. Yes, I agree there is much to admire about the Oracle of Omaha. However, I refuse to portray my subject as the deity of the investment world.

______________________

Vahan Janjigian

Vahan Janjigian is Forbes Chief Investment Strategist and Editor of the Forbes Growth Investor and Forbes Special Situation Survey investment newsletters. He also sits on the investment committee at Hillview Capital Advisors, LLC. and is the author of Even Buffett Isn’t Perfect, new in paperback.

You can visit his website at janjigian.blogspot.com

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