The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [592]
22. Former President Jimmy Carter letter to Warren Buffett, October 18, 2006.
23. The guinea worm enters the body through the drinking of tainted water, then grows up to three feet long and the width of a paper clip. The worm burns its way out through the skin by emitting an excruciatingly painful acid, emerging a few inches a day as sufferers wind it around a twig. They often seek relief by plunging into water, where the erupting worm releases a cloud of larvae to begin the cycle anew. The Carter Center and other nongovernmental organizations are tantalizingly close to wiping out the guinea worm.
24. Interview with Astrid Buffett.
25. After Susie’s death, both of her apartments in San Francisco’s Pacific Heights were sold, as was the Buffetts’ second house, “the dormitory,” in Emerald Bay. Buffett kept the original house in Emerald Bay, which continues to be used by his children and grandchildren. He never goes there.
26. On December 12, 2007, major central banks began to provide funding at terms longer than overnight, and began to auction funding against a broader range of collateral and with a broader set of counterparties. The Federal Reserve activated swap lines to help the other central banks provide liquidity in dollars to their markets.
27. Using the return on capital figure he achieved for shareholders through 2007 as a proxy, the author estimates that Buffett (not including Susie’s shares) would have been worth between $71 and $111 billion by the end of 2007 had he continued to charge his “partners” fees. Susie’s stake would have been worth another $3.7–$5 billion. The difference between the high and low range is the fee structure (Buffett’s former 25% plus 6% interest on capital to all partners—the high number—vs. the 2%/20% structure of most hedge funds today—the low number). The calculation assumes that Buffett took out the equivalent of his 6% a year for living expenses, as he typically did while running the partnership. That amounts to $1 million per year by 2007. His and Susie’s (really Susie’s) living expenses exceeded this by a wide margin; however, Buffett’s personal investments—not part of Berkshire—also compounded at an astonishing rate and could (and did) fund Susie’s lifestyle without further withdrawals from Berkshire.
28. Interview with Charlie Munger.
Afterword
1. Michael Santoli, “They’ve Got Class,” Barron’s, September 10, 2007.
2. E. S. Browning, “Stocks Tarnished by ‘Lost Decade,’” Wall Street Journal, March 26, 2008.
3. Warren Buffett letter to Nicole Buffett, August 10, 2006.
4. Richard Johnson with Paula Froelich, Chris Wilson, and Bill Hoffmann, “Buffett to Kin: You’re Fired!,” New York Post, September 7, 2006.
5. This excludes approximately $180 million of imputed investment income on the $5.5 billion of General Re’s cash that Buffett had transferred to National Indemnity and Columbia Insurance through intercompany reinsurance agreements. General Re estimated the effect on its return on equity at 150 basis points in each of 2005, 2006, and 2007.
6. The combination of underwriting profits and higher float produced a 20% return on average equity in 2006 compared to losses in earlier years. Gen Re grew its book value at an average of 12.8% since 2001, bringing its capital to more than $11 billion, compared to $8.6 billion when it was acquired. General Re made a $526 million profit from underwriting on premiums of about $6 billion—compared to earlier losses of between $1 and $3 billion (depending on the year) on premiums of just under $9 billion. Float had risen from about $15 billion to $23 billion on a 32% decline in premiums.
7. Joseph P. Brandon letter to Warren Buffett, January 25, 2008.
8. Berkshire Hathway 2007 letter to shareholders.
9. HIH Royal Commission, The Failure of HIH Insurance. Australia: National Capital Printing, Canberra Publishing and Printing, April 2003.
10. Doug Simpson, “Search for Deep Pockets Widens in Reciprocal of America Case,” Unintended Consequences blog (dougsimpson.com/blog), March 3, 2005; Timothy L. O’Brien, “Investigation of Insurance