BUZ LIVINGSTON: American icons Bogie and Buffett and fire finances
April 17, 2011 8:00 AM
Buz Livingston, Just Plain Talk
“We don’t need no badges.” — “Treasure of the Sierra Madre”
On my siesta yesterday, I used Berkshire Hathaway’s annual report for my eyeshade. Buffett’s annual letter to shareholders never ceases to amaze me. He writes brilliantly and is not a half-bad investor either.
To the chagrin of skeptics, the performance of newly acquired Burlington Northern Santa Fe railroad surprised even the Oracle of Omaha. Railroads have tremendous economic and environmental advantages over trucking. Here in the Sunshine State though Gov. Scott believes we don’t need no badges, err, light rail.
To no one’s surprise Berkshire’s annual report included an audited balance sheet and cash flow statements. A few days ago, I dug deeply into not one but two investment proposals as a trustee of the South Walton Fire District’s pension board.
They must have used invisible ink because there was nary an audited balance sheet or cash flow statement. The winning bidder promised a 10 percent return and that’s why the pension board spent $1.5 million on a private equity investment. We don’t need no badges, err, financial statements.
The proposals did have color glossy photographs and eye-catching pie charts, diagrams, maps, etc. but you won’t find any of that inside a Berkshire Hathaway annual reports, just numbers and management’s discussion.
At the Walton County Chamber’s monthly luncheon, I discussed the purchase with a local bank president. He dryly noted, “Do they even know what they bought?” Investment writer Ray DeVoe’s wry observation comes to mind, “More money has been lost reaching for yield than at the point of a gun.”
Unless Buffett has some surprises up his sleeve, he does not appear to have much interest in private equity speculation. He loves good investments and is not scared to pull the trigger. His company shelled out $22 billion to snare our aforementioned railroad in February of 2010. Berkshire is on track to spend billions more to complete the purchase of the Marmon company from the Pritzker family. Buffett makes sure his money flows to worthy opportunities and “there is an abundance of that in America.”
Buffett don’t need no badges, err, private equity.
Buffett writes, “At Berkshire, our time horizon is forever.” When examining the pension board’s actuarial report, over a much shorter period, the results are improving but still grim. The most recent actuarial statement shows funding levels of only 63 perent versus a prudent level of 80-85 percent. However, that figure assumes an 8 percent return. The California Public Employees Retirement system (Calpers) uses only 7.75 percent. The largest public pension plan in the United States applies a lower discount rate than our Fire District. Either we are much smarter or more foolish, time will tell.
We don’t need badges, err, a correct discount rate.
Defined contribution plans have inherent and fatal weaknesses. As a financial professional, I am a staunch believer in defined benefit pension plans. However, management, labor, and trustees must realize no silver bullets exist. Over the last 20 years, Calpers has returned 7.9 percent before administrative and investment expenses. Assuming we can outperform the country’s largest pension plan — hold the laughter — only the truly delusional would forecast lower annual costs. But there are birthers, too.
Unless the state of Florida, firefighters, or the Fire District commits more funds to this plan, someone’s pension check will likely bounce. Warren Buffett always considers the long-range implications of investment decisions. In “Treasure of the Sierra Madre” Bogie’s character Fred refused.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.
April 17, 2011 8:00 AM
Buz Livingston, Just Plain Talk
“We don’t need no badges.” — “Treasure of the Sierra Madre”
On my siesta yesterday, I used Berkshire Hathaway’s annual report for my eyeshade. Buffett’s annual letter to shareholders never ceases to amaze me. He writes brilliantly and is not a half-bad investor either.
To the chagrin of skeptics, the performance of newly acquired Burlington Northern Santa Fe railroad surprised even the Oracle of Omaha. Railroads have tremendous economic and environmental advantages over trucking. Here in the Sunshine State though Gov. Scott believes we don’t need no badges, err, light rail.
To no one’s surprise Berkshire’s annual report included an audited balance sheet and cash flow statements. A few days ago, I dug deeply into not one but two investment proposals as a trustee of the South Walton Fire District’s pension board.
They must have used invisible ink because there was nary an audited balance sheet or cash flow statement. The winning bidder promised a 10 percent return and that’s why the pension board spent $1.5 million on a private equity investment. We don’t need no badges, err, financial statements.
The proposals did have color glossy photographs and eye-catching pie charts, diagrams, maps, etc. but you won’t find any of that inside a Berkshire Hathaway annual reports, just numbers and management’s discussion.
At the Walton County Chamber’s monthly luncheon, I discussed the purchase with a local bank president. He dryly noted, “Do they even know what they bought?” Investment writer Ray DeVoe’s wry observation comes to mind, “More money has been lost reaching for yield than at the point of a gun.”
Unless Buffett has some surprises up his sleeve, he does not appear to have much interest in private equity speculation. He loves good investments and is not scared to pull the trigger. His company shelled out $22 billion to snare our aforementioned railroad in February of 2010. Berkshire is on track to spend billions more to complete the purchase of the Marmon company from the Pritzker family. Buffett makes sure his money flows to worthy opportunities and “there is an abundance of that in America.”
Buffett don’t need no badges, err, private equity.
Buffett writes, “At Berkshire, our time horizon is forever.” When examining the pension board’s actuarial report, over a much shorter period, the results are improving but still grim. The most recent actuarial statement shows funding levels of only 63 perent versus a prudent level of 80-85 percent. However, that figure assumes an 8 percent return. The California Public Employees Retirement system (Calpers) uses only 7.75 percent. The largest public pension plan in the United States applies a lower discount rate than our Fire District. Either we are much smarter or more foolish, time will tell.
We don’t need badges, err, a correct discount rate.
Defined contribution plans have inherent and fatal weaknesses. As a financial professional, I am a staunch believer in defined benefit pension plans. However, management, labor, and trustees must realize no silver bullets exist. Over the last 20 years, Calpers has returned 7.9 percent before administrative and investment expenses. Assuming we can outperform the country’s largest pension plan — hold the laughter — only the truly delusional would forecast lower annual costs. But there are birthers, too.
Unless the state of Florida, firefighters, or the Fire District commits more funds to this plan, someone’s pension check will likely bounce. Warren Buffett always considers the long-range implications of investment decisions. In “Treasure of the Sierra Madre” Bogie’s character Fred refused.
Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@LivingstonFinancial.net.
