The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [569]
3. In “How to Tame the Casino Economy,” Washington Post, December 7, 1986, Buffett advocated a 100% confiscatory tax on profits from the sale of stocks or derivative instruments that the holder has owned for less than a year.
4. Linda Grant, “The $4-Billion Regular Guy.” Buffett hosannaed Gutfreund in his shareholder letters as well.
5. The principal conflicts inherent in Salomon’s business were the undisclosed bid-ask spread that Buffett had objected to while working for his father’s firm in Omaha, the conflict between proprietary trades for the firm’s account alongside customer trades, the investment banking business built off equity research stock ratings, and the arbitrage department, which could trade on the firm’s merger deals. As a board member who made Berkshire’s investment decisions, Buffett says he either recused himself from discussions involving deals or did not invest on information he had, yet his board membership did create the appearance of a conflict of interest.
6. The Standard & Poor’s 500 index was used as a proxy for the market.
7. Bertie would never make this bet. Since childhood, Warren had beaten her at every game they ever played; never once had he let her win. She would have known that he would eat a potato chip just so she would have had to pay up.
8. Letter from Warren E. Buffett to the Honorable John Dingell, U.S. House of Representatives, March 5, 1982.
9. In the interest of brevity, the history of portfolio insurance has been shortened considerably. The rout began as the Federal Reserve raised the discount rate over Labor Day weekend 1987. Over the next month, the market wavered and showed signs that investors were nervous. On October 6, the Dow broke a one-day record when it fell 91.55 points. Interest rates continued to climb. The Dow dropped another 108 points on Friday, October 16. Professional money managers spent the weekend pondering. On Black Monday, October 19, many stocks failed to open at all in the early hours of trading and the Dow fell a record-breaking 508 points. The exact cause of the crash remains in dispute. Program trading and equity index futures accelerated the decline, but economic factors, military tensions, comments by Federal Reserve Chairman Alan Greenspan about the dollar, a slowing economy, and other factors have been blamed.
10. Interviews with Ed Anderson, Bill and Ruth Scott, Marshall Weinberg, Fred Stanback, Tom Knapp.
11. Interview with Walter Scott Jr.
12. In this case, the way to be hedged would be to short a broad group or index of stocks.
13. This account is based on both Doris’s and Warren’s versions of the story.
14. James Sterngold, “Too Far, Too Fast: Salomon Brothers’ John Gutfreund,” New York Times, January 10, 1988.
15. Salomon supplied its clients’ debt needs along all points of the maturity ladder. For a bond shop to eliminate its commercial paper department was a baffling decision.
16. Four past option grants to Gutfreund were about to expire worthless and a fifth would have yielded only a trivial gain. The revised exercise price reaped Gutfreund an estimated $3 million. The impact of swapping all stock options for new options affected 2.9% of outstanding shares. Salomon’s 1987 proxy did not disclose the repricing and instead contained an additional $4.5 million or 3.4% stock-option grant (Graef Crystal, “The Bad Seed,” Financial World, October 15, 1991).
17. Interview with Bob Zeller.
18. Ibid. Zeller says that Buffett represented the shareholders’ interests on the compensation committee with integrity, while trying to determine which employees genuinely deserved reward.
19. John Taylor, “Hard to Be Rich: The Rise and Wobble of the Gutfreunds,” New York, January 11, 1988.
20. Interviews with John Gutfreund, Gedale Horowitz.
21. Interview with Tom Strauss.
22. While technically the terms of the preferred stock didn’t work that