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Friday, July 30, 2010

WALL STREET JOURNAL: From Tiananmen Square to Possible Buffett Successor

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.

From left to right: David Sokol of MidAmerican, Warren Buffett, Wang Chuan-Fu of BYD and Mr. Li.

LU_3

The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.

The development illustrates that Berkshire is moving toward putting in place—possibly sooner than investors anticipated—certain aspects of its succession plan.

The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire's BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li's hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor's 500 stock index during the same period.

Mr. Li's ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li "hardworking and clever."

Mr. Li's investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn't understand.

Mr. Buffett says Berkshire's top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire's $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.

In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn't rule out bringing in an investment manager such as Mr. Li while still at Berkshire's helm.

"I like the idea of bringing on other investment managers while I'm still here," Mr. Buffett says. He says he doesn't preclude making a move this year, though he adds that there is no "goal" to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be "paid as a group" from one pot, he says. "I don't want them to compete."

Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.

But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.

It's unclear whether he could rack up such profits if managing a large portfolio of Berkshire's.

What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down could backfire in a prolonged bear market. Despite a 200% return in 2009, he was down 13% at the end of June this year, nearly double the 6.6% drop in the S&P-500 during the period.

Mr. Li declines to discuss a potential Berkshire position, saying only that he feels fortunate to be a member of the Berkshire inner circle. "This is the stuff you can't conjure in dreams," he says.

Mr. Li was born in 1966, the year Mao Zedong's Cultural Revolution began. When he was nine months old, he says, his father, an engineer, was sent to a coal mine to be "re-educated." His mother was sent to a labor camp. Mr. Li's parents paid various families to take him in. He was shuttled from family to family for several years until moving in with an illiterate coal miner, with whom he developed a close bond, in his hometown of Tangshan. Living apart from his family as a child taught him survival skills, Mr. Li says.

He was reunited with his family, including two brothers, by age 10, when a massive earthquake hit his hometown, killing an estimated 242,000 people in the area, including the coal miner and his family. His nuclear family was spared, he says, but "most of the people I knew were killed."

At the time, he says he had no direction and was fighting in the streets. Mr. Li says his grandmother, who was among the first women in her city to attend college, inspired him to begin reading and studying. He later attended Nanjing University, majoring in physics.

In April 1989, he traveled to Tiananmen Square in Beijing to meet with students who were gathering to mourn the death of Secretary General Hu Yaobang, who was viewed as a supporter of democracy and reforms.

The students protested against corruption, among other things, and Mr. Li helped organize the students and participated in a hunger strike.

He and other students fled to France. Later in 1989, he traveled to the U.S. to speak at Columbia University, where human-rights activists embraced him as a hero. He spoke little English but landed an advance to write a book about his experiences.

Helped by financial scholarships at Columbia, Mr. Li quickly learned English. He simultaneously earned three degrees: an economics degree, a law degree and a graduate degree in business, according to Columbia.

With his student loans piling up, Mr. Li attended a lecture by Mr. Buffett at Columbia in 1993. At the time, the 1990s bull market was in full swing, and hedge funds were on the rise. Mr. Li says in China he didn't trust financial markets but hearing Mr. Buffett helped him overcome skepticism about stock investing.

He began dabbling in stocks using money from his book advance. By his graduation in 1996, he had built a sizable nest egg and says he thought he could retire. Instead he took a job at securities firm Donaldson Lufkin & Jenrette and then left to set up his own hedge fund. In 1997, he had set up Himalaya Partners, a hedge fund. Later he started a venture-capital fund to invest in U.S. technology companies.

It was a heady time on Wall Street. The Internet boom was beginning. Investors were clamoring to find hot stocks.

Through his human-rights contacts, Mr. Li quickly attracted well-heeled clients including Bob Bernstein, former chairman of Random House and founder of Human Rights Watch as well as the musician Sting. Other investors included financier Jerome Kohlberg, News Corp. director emeritus and Allen & Co. executive Stanley Shuman and hedge fund manager Jack Nash, Mr. Li says.

But Mr. Li bombed out in 1998, his first year as a hedge fund manager. His fund, which was invested chiefly in Asian stocks, was hammered by the Asian debt crisis, and lost 19%.

"I felt bad that people had trusted me," he says. "All they knew was I was a student activist and all they saw was losses."

His fortunes rebounded as the Asian crisis quickly faded. As 1998 began, so did a huge new bull market. By now, the hedge-fund industry was growing gangbusters, and by the end of 1999, Mr. Li's fund had regained its losses.

In 2002, hedge-fund giant Julian Robertson gave Mr. Li money to invest in his fund on the condition that the fund would make bearish as well as bullish bets on companies.

It wasn't a good fit. Mr. Li says he "hated" betting against stocks, complaining that he had to "trade all the time" to adjust his portfolio. (The remaining parts of the fund now are being unwound.) Mr. Robertson declined to comment on the business relationship.

One of Mr. Li's human-rights contacts was Jane Olson, the wife of Ronald Olson, a Berkshire director and early partner at a Los Angeles law firm Mr. Munger helped found. Mr. Li began spending time at the Olsons' weekend home in Santa Barbara, Calif., and on Thanksgiving 2003 met Mr. Munger, whose home is nearby.

Mr. Munger says Mr. Li made an immediate impression. The two shared a "suspicion of reported earnings of finance companies," Mr. Munger says. "We don't like the bull—."

Mr. Munger gave Mr. Li some of his family's nest egg to invest to open a "value" fund betting on beaten-down stocks.

Two weeks later, Mr. Li says he met again with Mr. Munger to make certain he had heard right. In early 2004, Mr. Li opened a fund, putting in $4 million of his own money and raising an additional $50 million from other investors. Mr. Munger's family put in $50 million, followed by another $38 million. Part of Mr. Li's agreement with Mr. Munger was that the fund would be closed to new investors.

Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.

Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)

When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.

In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.

BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.

The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.

Says Mr. Munger: "The big lithium battery is a game-changer."

BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.

Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.

Mr. Li is able to travel in China on a limited basis today, but he hopes to regain full travel privileges soon. It isn't clear how he is viewed by the Chinese government.

Mr. Li declined to name his fund's other holdings. Despite this year's losses, the $600 million fund is up 338% since its late 2004 launch, an annualized return of around 30%, compared to less than 1% for the S&P 500 index.

Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."

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Wednesday, July 28, 2010

BLOOMBERG: Volatility Trade Buffett Embraced Backfires for Wall Street Hedge Experts

A bullish stock market trade embraced by the smartest money is backfiring. And that has investors wondering if what Warren Buffett and Goldman Sachs Group Inc. know about derivatives is obsolete.

Goldman Sachs, the world’s most profitable securities firm, reported losses from derivatives last quarter after selling insurance that protected clients against stock swings during the Standard & Poor’s 500 Index’s biggest retreat in more than a year. Buffett, the chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., underwrote $37 billion of the contracts since 2004, filings with the Securities and Exchange Commission show.

The combination of hedging by insurance companies, tighter regulation of bank speculation and reluctance among securities firms to write derivatives known as variance swaps means speculators who sold them are now facing losses, according to Morgan Stanley and Societe Generale SA. Money-losing trades in both rising and falling markets show the hazards of the business for even Wall Street’s most sophisticated investors.

“It’s as extreme as I’ve ever seen,” said Neil Davies, head of structured equity products at SunTrust Robinson Humphrey Capital Markets in Atlanta. “There’s a lot of uncertainty in the over-the-counter volatility market, illustrated by the fact that long-dated volatility levels are reminiscent of October 2008. Rumors abound, specifically that some institutions are closing out short positions.”

Playing Volatility

Goldman Sachs said its bets that stock swings would narrow lost money in the second quarter, according to its earnings statement. While the firm didn’t break out the loss, Goldman Sachs said revenue in the division arranging the trades slumped 62 percent from a year earlier to $1.21 billion. Ed Canaday, a spokesman for the New York-based company, declined to comment.

“Primarily in response to our client needs, our equity derivatives business was short volatility entering the second quarter and posted poor results,” Chief Financial Officer David Viniar said on a conference call with reporters on July 20. “We took the other side because you know we deal with our clients all the time,” he said. “We had that position going into the quarter and volatility just spiked.”

The Chicago Board Options Exchange Volatility Index, which ended the first quarter at 17.59, rose as high as 45.79 on May 20 as the S&P 500 lost 8.4 percent. The VIX, a measure of investor expectations for stock swings known as implied volatility, has since decreased to 24.25, or 19 percent above the average over its two-decade history, while the equity index has rebounded 3.2 percent, data compiled by Bloomberg show.

‘Consenting Adults’

“Either they took the position on purpose or they took it because they couldn’t get anyone else to take it,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees about $57 billion. “There are two consenting adults to every trade on the over-the-counter market or on an exchange. They consented at some level, and maybe their hedges were bad. Maybe they sincerely believed in the trade and they got hung out to dry.”

While demand for insurance against declines in the next 30 days retreated as shares rallied this month, prices for longer- dated protection surged to a record. Ten-year variance swaps, contracts that pay buyers when stock swings increase, are trading at levels that imply S&P 500 volatility is poised to exceed its rate during the 2008 credit crisis, Paris-based Societe Generale’s data show.

Sellers’ Strike

Swaps are agreements between parties to exchange one right for another, while variance swaps let investors speculate on the magnitude of movements by an index. They are a type of derivative, or contract whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or price fluctuations.

Over-the-counter variance swaps have appreciated so rapidly that firms that sold swaps in January at a volatility level of 28.5 and $1 million per point faced paper losses of as much as about $8.2 million this month when swap rates rose to a record 38.5 points, according to data compiled by Bloomberg and Societe Generale. Their expected gain based on past volatility levels would have been about $5 million, according to Societe Generale.

Life insurers, which sell retirement products with guaranteed minimum returns even in declining markets, rely on derivatives to hedge against stock slumps. Variable annuity sales rose 5 percent in the first three months of the year to $32.4 billion, the first quarterly increase in two years, according to Limra International, a trade group.

‘Liquidity Shortage’

“Wall Street historically has been able to meet demands for longer-dated volatility products,” said Pav Sethi, chief investment officer of Chicago-based hedge fund Gladius Investment Group, which uses variance swaps. “Regulations, tighter risk limits at the banks and a limited number of interested participants have created a large liquidity shortage.”

The financial regulation bill signed into law July 21 by U.S. President Barack Obama strengthens oversight of derivatives and forces banks to take less risk with their own capital. How that will affect banks and insurers isn’t clear yet, causing some institutions to scale back their use of derivatives, Morgan Stanley analysts said in the July 15 note.

“Originally it was large institutions hedging their long- dated exposures,” said Anand Omprakash, an equity derivatives strategist at BNP Paribas SA in New York. “After that started pushing implied volatility levels up, there were other parties who started to cover their short positions. This drove the price up significantly.”

Margin Call

Berkshire lobbied Congress against a higher collateral requirement for previously written derivatives trades under the financial reform law, David Sokol, the head of the company’s energy business, said in April. Buffett, who uses derivatives to speculate on the direction of stock markets, has about $37 billion at risk in equity-linked contracts, whose pricing may be influenced by the variance swaps market. Buffett didn’t reply to a request for comment e-mailed to an assistant.

“He handcuffed himself during the crisis by selling puts at the top of the market,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha,” a Berkshire investor and founder of hedge fund Ram Partners LP. “His whole company is a bet on a rising market over a very long period of time. So to then sell derivatives on the basis of that is doubling the chips on black. And that limits his flexibility when he gets the chance to really deploy massive amounts of capital during the crisis.”

Equity Premium

Berkshire got premiums of $4.9 billion on the equity index puts and is free to invest that cash over the lifetime of the contracts, Buffett said in his letter to shareholders last year. At the time he estimated Berkshire would owe about $9 billion if the four indexes it covers fell 25 percent from their levels when the contracts were written. Buffett has said Berkshire sold the swaps from 2004 to the first quarter of 2008. Buffett’s contracts mature between June 2018 and January 2028.

“We are delighted that we hold the derivatives contracts that we do,” Buffett said in his letter to shareholders in February. “If Berkshire ever gets in trouble, it will be my fault. It will not be because of misjudgments made by a Risk Committee or Chief Risk Officer.”

Berkshire posted $550 million in collateral on the equity index derivatives and its credit default swaps at the end of 2008. As markets recovered in 2009, the requirement plummeted to $35 million at Dec. 31. In the second quarter of 2009, Buffett renegotiated six of the equity index puts to shorten the durations and lower the strike prices.

More Cash

Buffett drew down Berkshire’s $44 billion in cash during the 2008 credit crisis to finance companies whose traditional sources of funding pulled back. Deals to inject $5 billion into Goldman Sachs and $3 billion into General Electric Co. pay 10 percent coupons and boosted Berkshire’s investment income. The premiums gave Buffett more cash to invest, said Thomas Russo, a partner at Gardner Russo & Gardner in Lancaster, Pennsylvania.

“What really did matter was that he had ready cash to invest, $5 billion of it, during one of the great buying opportunities of all time,” Russo, a Berkshire shareholder, said. “He’s been historically unrivaled by his willingness to take on short-term pain for long-term risks.”

The stock market’s retreat from its 2007 peak has led to billions of dollars of charges against Berkshire’s earnings. As of March 31, the Omaha, Nebraska-based company listed a liability of $7.13 billion related to the contracts on its balance sheet, up about 55 percent from the end of 2007.

Investment Income

Buffett says Berkshire has no counterparty risk because it collects premiums at the inception of each contract, and that the collateral requirements are minimal. The 79-year-old investor says he expects the contracts to be profitable, even if Berkshire has to pay out, because of investment income he expects to generate over the decade or two he holds the premium.

“The shadow of Warren Buffett really impacts the psychology of both positive and negative market bets,” said Michael Yoshikami, who oversees about $1 billion as chief investment strategist at YCMNet Advisors in Walnut Creek, California. “Him exiting these trades will impact variance, because his movement alone will increase the anxiety levels in these markets.”

Berkshire Equity Index Options Positions, in Billions:

2010 Assets Liabilities Maximum loss
1Q -- $7.131 $36.760

2009
4Q -- $7.309 $37.990
3Q -- $8.012 $38.592
2Q -- $8.233 $37.480
1Q -- $10.188 $35.489

2008
4Q -- $10.022 $37.134
3Q -- $6.725 $37.042
2Q -- $5.845 $39.878
1Q -- $6.171 $40.088

2007
4Q -- $4.610 $35.043

2006
4Q $0.016 $2.463 $21.396

2005
4Q $0.035 $1.592 $14.488

2004
4Q $0.069 $0.380 $4.626


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BLOOMBERG: Tiger Club U.S. Millionaires Pounce on Buffett's 19% Return at Berkshire

Warren Buffett's Berkshire Hathaway Inc. is top stock pick

Berkshire Hathaway chief executive officer Warren Buffett. Photographer: Daniel Acker/Bloomberg

Warren Buffett’s Berkshire Hathaway Inc. is the darling of U.S. millionaires, or at least those in Tiger 21, a peer investment group.

Members of New York-based Tiger 21 picked Berkshire as their top stock in a survey of preferred investments because they like Buffett’s strategy of buying companies, according to Michael Sonnenfeldt, a founder of Tiger 21, which is an investment club of 140 members, most of whom have a net worth of at least $10 million, totaling more than $10 billion in collective assets.

“No one wants to be a stock picker, but if they are, they’re going to back someone who has essentially created his wealth through buying stock,” said Sonnenfeldt, 54, referring to Buffett, who has built Omaha, Nebraska-based Berkshire over four decades of takeovers. Berkshire’s Class A and Class B shares have returned 19 percent this year.

Tiger 21 members, who include former investment professionals, law firm partners and business owners, meet monthly in groups of 14 across the country to debate investing strategies. The organization was started in 1999 to help entrepreneurs who had sold their businesses and were trying to figure out what to do with their proceeds. Membership fees are $30,000 annually.

A typical member portfolio right now is about 30 percent in equities, 25 percent in real estate, 20 percent in fixed income, 10 percent in cash, 10 percent in private equity and 5 percent in hedge funds, Sonnenfeldt said.

Retail investors in general had 25 percent of their portfolios in stock funds, 28 percent in individual equities, 15 percent in bond funds, 6 percent in bonds and 26 percent in cash in June, according to a survey by the American Association of Individual Investors, a nonprofit investment education group in Chicago.

Fairholme Fund

“There aren’t many people jumping in the stock market -- they’re nervous,” said Todd Morgan, senior managing director at Los Angeles-based Bel Air Investment Advisors, which has 260 clients, with minimum portfolios of $20 million. “But that’s usually the best time to buy.”

Mutual funds were the preferred way of equity investing for Tiger 21’s members, with 26 percent of equity-related investments generated via mutual funds, according to the survey findings, which were based on responses from about 70 members in March.

The fund named most often was the long-term growth Fairholme Fund, operated by Fairholme Capital Management LLC in Miami, with assets of $15.2 billion as of July 26. The fund, which has a minimum investment of $10,000, management fees of 1 percent and early withdrawal fees of 2 percent, has returned 8.2 percent this year. It ranks 11th out of 1,840 large-blend funds, according to Morningstar Inc., the Chicago-based fund researcher.

Municipal Bonds

Members are maintaining their positions in public equity because “even if you want to preserve wealth, there’s a fundamental understanding that the only way you can ever really grow a portfolio is through equity appreciation,” Sonnenfeldt said.

Municipal bonds comprise more than 20 percent of portfolios for more than half who cited them. The most commonly mentioned wealth manager for municipal bond portfolios was New York-based Slevin Wealth Management Group of RBC Wealth Management, which oversees about $164 billion.

Slevin supervises about $1 billion in assets and prefers government-backed municipal bonds with average maturities of three years to four years as a way to provide income, liquidity and a hedge against market volatility, said Ron Slevin, senior vice president.

Safe Haven

Members aren’t building big long-term municipal holdings because of the low rates and most of their municipal bonds are legacy holdings for tax-free income, Sonnenfeldt said. The year- to-date return for the average municipal bond fund was 3.98 percent, according to Morningstar.

“Municipal bonds are generally good investments in a deflationary environment, but we would always favor high quality straight bonds instead of bond funds,” said Paul Tramontano, co-chief executive officer of investment firm Constellation Wealth Advisors in New York. Constellation’s clients, who have a minimum of $10 million in investable assets, are putting money in hedge funds because of the market volatility, he said.

Private equity was mentioned by 19 percent of Tiger 21 members, with investors most likely to choose funds managed by the New York office of Golub Capital and Bain Capital LLC in Boston. Tiger 21 members are investing in private companies in industries that they have knowledge of because they feel it’s less risky and they have more control, Sonnenfeldt said.

‘Back to Basics’

“Given how much they’ve been burned by investing in sophisticated instruments they found they didn’t understand a little too late, they are going back to basics,” said Sonnenfeldt, who estimated that 70 percent of members are former entrepreneurs.

Fourteen percent of Tiger millionaires also listed real estate as a favorite investment and members have an even mix of personal and investment properties, the survey showed.

Tommy Gallagher, a Tiger 21 member and former vice chairman at CIBC World Markets, said half of his portfolio is allocated to personal real estate. Of the rest, about 60 percent is in hedge funds run by New York-based Balestra Capital Partners, headed by James Melcher, and New York-based Elliott Management Corp., he said.

‘Sky is Falling’

Melcher has a significant gold position as a currency bet, which Gallagher said he favors as did some other Tiger 21 members. Gold-related investments were picked by 6 percent of respondents, with 75 percent of investors allocating from 11 percent to 20 percent of their portfolios to gold, the survey said.

“By nature, I’m someone who worries about the end of the world and thinks the sky is falling,” said Gallagher, 65, who lives in New York and declined to specify his net worth. “I only invest with people who have a similar viewpoint, very risk- averse.”

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BUSINESSWEEK: Buffett’s Dairy Queen Asks Court to Ban Competitor to Blizzard

By Dakin Campbell and Andrew Frye

July 28 (Bloomberg) -- International Dairy Queen, the ice cream maker owned by Warren Buffett’s Berkshire Hathaway Inc., asked a California court to halt sales of frozen desserts marketed under a name similar to its Blizzard product.

Blizz Frozen Yogurt is causing confusion among customers familiar with Dairy Queen’s best-selling item, the company said in a filing in U.S. District Court in Los Angeles. The request seeks to block Yogubliz Inc.’s use of the Blizz name. Yogubliz filed a pre-emptive suit in May, saying it received threats from Dairy Queen and that the two products are distinct.

Dairy Queen “is suffering irreparable harm and damage to the goodwill” of Blizzard trademarks, the company said in a July 26 filing. Yogubliz’s product is “likely to cause confusion, mistake and deception among consumers.”

Dairy Queen, which operates restaurants in every U.S. state but Vermont, was purchased by Omaha, Nebraska-based Berkshire in 1998, according to the company’s website. Buffett, Berkshire’s chief executive officer, built the parent company with investments in brands like Coca-Cola Co. and American Express Co.

Dairy Queen said Blizz Frozen Yogurt would dilute the distinctive quality of the “famous” Blizzard treat, according to the filing. The Blizzard is a “soft serve frozen dairy product blended with candy or cookie pieces or other flavorings,” the company said.

Blizzard Sales

Dairy Queen sold more than 175 million Blizzards in 1985, the first year it was offered, according to the company’s website.

In its complaint, Yogubliz said its product doesn’t infringe on Dairy Queen trademarks. The rival offerings are “based on the wholly unprotectible idea of freezing and serving milk and milk-based products with or without flavoring, coloring and/or non-milk products,” according to the complaint.

Yogubliz said its products received “rave reviews” upon launch and, because they’re made with frozen yogurt, are different than Dairy Queen’s Blizzard. Yogubliz owns shops throughout California and in Las Vegas.

The company said it received a trademark last year for Blizzberry, a blended drink made with fruit, milk and frozen yogurt.

A hearing is set for an Aug. 23 in front of U.S. District Judge Gary Klausner.

Dean Peters, a spokesman for Dairy Queen, declined to comment. A call to Yogubliz’s offices after hours wasn’t returned.

The case is Yogubliz Inc. v. American Dairy Queen Corp., 2:10-cv-03677, U.S. District Court, Central District of California (Los Angeles).

--Editors: Dan Reichl, Peter Blumberg.

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Friday, July 23, 2010

MARKETWATCH: Warren Buffett Signs Giant Red Dairy Queen Spoon to Be Auctioned on Ebay for Charity

Oracle of Omaha Teams with Dairy Queen System for Children's Miracle Network

OMAHA, Neb., Jul 21, 2010 (BUSINESS WIRE) -- Legendary investor Warren Buffett, CEO of Berkshire Hathaway (NYSE: BRK.A and BRK.B), has teamed with the Dairy Queen(R) system to auction off a 33-inch, five pound, red metal DQ(R) spoon with his autograph to benefit Children's Miracle Network, a non-profit organization dedicated to saving and improving the lives of children by raising funds for 170 children's hospitals.

The recognizable DQ red spoon accompanies the treat industry leader's popular Blizzard(R) Treats and signature Royal Treats(R) served at Dairy Queen and DQ Grill & Chill(R) locations around the world.

Bidding is now open on eBay(R) and will run through Friday, July 30. The opening bid is 99 cents. The online auction will be managed by Auction Cause, a premier auction management agency.

The larger-than-life spoon embellished with Buffett's "John Hancock" was custom designed to adorn the DQ Blizzard(R)mobile which took to the road in April to celebrate the 25th birthday of the Dairy Queen system's iconic Blizzard Treat. The Blizzardmobile has been traveling across the U.S. and Canada over the past four months distributing more than 75,000 free new Mini Blizzard Treats, all while raising awareness and funds for Children's Miracle Network. The giant DQ spoon was signed by Buffett when the Blizzardmobile made a stop at the Dairy Queen booth during the Berkshire Hathaway shareholders meeting this past May.

The auction kicks off the Dairy Queen Fifth Annual Miracle Treat Day on Thursday, August 5 when $1 or more from every Blizzard Treat sold at participating locations that day will be donated to Children's Miracle Network.

"Miracle Treat Day is an important event for us and represents the enthusiasm and generosity that everyone in the DQ family and our customers have for helping children," said John Gainor, president and CEO of International Dairy Queen, Inc. "We appreciate Warren's help to raise awareness and funds for Children's Miracle Network."

Dairy Queen is one of the top 10 contributors to Children's Miracle Network, having raised more than $81 million since 1984.

About Children's Miracle Network:

Children's Miracle Network is an international non-profit organization that raises funds for more than 170 children's hospitals. To learn more go to ChildrensMiracleNetwork.org.

About IDQ:

International Dairy Queen (IDQ), which is headquartered in Minneapolis, Minn., develops licenses and services a system of more than 5,600 Dairy Queen(R) stores in the United States, Canada and other foreign countries. IDQ is part of the Berkshire Hathaway family, a company owned by Warren Buffett, the legendary investor and CEO of Berkshire Hathaway. For more information, visit DairyQueen.com.

Photos/Multimedia Gallery Available: http://www.businesswire.com/cgi-bin/mmg.cgi?eid=6367878&lang=en

SOURCE: International Dairy Queen

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Friday, July 16, 2010

CNBC: Warren Buffett Tells Obama Still 'Long Way to Go' After 'Wrenching Recession'

Published: Friday, 16 Jul 2010 | 2:11 PM ET

By: Alex Crippen
Executive Producer

Warren Buffett  discusses the economy with President Barack Obama during an Oval Office  meeting on July 14, 2010.
White House Photo by Pete Souza
Warren Buffett discusses the economy with President Barack Obama during an Oval Office meeting on July 14, 2010.

Warren Buffett got a new tie out of his White House meeting Wednesday with President Barack Obama.

We now know what Obama got out of it.

After a visit Thursday to an LG battery plant in Michigan, President Obama sat down with NBC News Chief White House Correspondent Chuck Todd for an exclusive interview.

Todd asked if business leaders, including Buffett, are telling him they're not putting private capital to work creating jobs because they're uncertain about what the government is going to do on taxes and regulations:

"I'll tell you exactly what Warren Buffett said. He said, we went through a wrenching recession, and so we have not fully recovered. We're about 40, 50 percent back. But we've still got a long way to go. And the reason people haven't fully invested yet, and started creating as many jobs as we would like, is because it takes some time to come back.

He used a good example in the housing market, where about 1.2 million households are formed to buy a house each year. That's been the historic trend. But we went through a span of time, four or five years, because of the bubble and sub-prime lending and all the shenanigans that were going on with the mortgage market, when we were building two million homes a year. Now we're building 500-thousand, and what Warren pointed out was, look, we're going to get back to 1.2, but right now we're soaking up a whole bunch of inventory.

So, a lot of the challenge is to work our way through this recession, try to accelerate, not only profits, because companies now are making money primarily because they've cut costs, but also to see the opportunities out there. And that's what we're trying to show with this plant. There are enormous opportunities for the future. We just have to seize them."

Current Berkshire stock prices:

Berkshire Portfolio

Class B: [BRK.B 77.73 -1.98 (-2.48%) ]

Class A: [BRK.A 116703.0 -2967.00 (-2.48%) ]


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FORBES: Is Goldman Sachs's Settlement A Black Eye For Warren Buffett?

July 15, 2010 - 5:40 pm

Steven Bertoni is a Global Wealth reporter for Forbes.

Goldman Sachs just settled its SEC security fraud case for $550 million. Naturally, the investment bank will not admit to any wrong doing aside from going light on the details on some marketing materials. But the $550 million payment--the largest penalty a Wall Street firm has paid the SEC--shouts over any PR or legal explanations.

Goldman Sachs's shares surged now that uncertainty over the fraud suit are gone--in fact the $550 million settlement has just added back $3.2 billion in market cap. But does the settlement tarnish the reputation of billionaire investor Warren Buffett?

Buffett's Berkshire Hathaway sunk $5 billion in Goldman during the doldrums of the credit crunch. Buffett, the world's most venerable investor, has been a staunch supporter of Goldman, and its beleaguered chief, Lloyd Blankein. As he told Reuters in May:

"We love the investment," Buffett said. He said "I do not hold against Goldman the fact at all" that the SEC sued, and that it did not fall "within my category" where reputational issues would call into question the Berkshire investment."

It's never a good thing when a company you publicly defend just breaks the record for highest fine ever paid to the SEC.


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The Intelligent Investor: The Definitive Book on Value Investing. A                                Book of Practical Counsel (Revised    Edition)

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