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Five for Friday

Some things you might wish to read over the course of Friday night, Saturday and Sunday:

• You know Warren Buffett is firmly planted in our Popular Culture when stories appear based on Berkshire Hathaway's latest SEC filings. I caught "Worldwide Exchange" on CNBC this morning at 4:00 a.m. US Eastern Time, and Bloomberg's morning show on the E! Channel at 5:00 (both a rarity, I seldom watch TV in the morning). CNBC and Bloomberg both reported on Berkshire's latest moves, something they may have done years ago -- but I doubt with anywhere as much emphasis. Normally, I'd say this means tracking Buffett's moves will no longer prove as profitable for investors. But the reality is (as Buffett says) his universe is limited by the size of Berkshire's portfolio. He's hunting elephants and you or I can exploit opportunities in smaller creatures he can't bother with.

• I devoutly hope that a special place in hell is reserved for so-called "public servants" who collect cushy salaries at taxpayer expense, and shamelessly (and self-righteously) trash reputations and ruin lives in their climb up the political ladder. Eliot Spitzer was reportedly born into wealth, but he looks to be a perfect fit in every other way. James Freeman writes about Spitzer, Hank Greenberg and AIG in The Wall Street Journal.

• I've posted about David Webb previously. He is Hong Kong's most prominent shareholder activist, but has quit as an independent director of the city's stock exchange, citing political interference and poor corporate governance. This is a story worth keeping an eye on. We need more shareholder-friendly stock exchanges around the globe, not fewer.

• Gary North is a veteran hard-money newsletter editor. I've never followed him closely, or subscribed to his publication, yet I gather he's frequently bearish. Here he is less expecting bad times than I expected. While he still believes we'll have a recession, he doesn't think it will be as bad. And North adds that the chances of a recession are less than they were in mid-April.

• Congratulations to Bob Novak on celebrating 45 years of column writing this week. Novak is THE BEST reporting columnist around, in my book. I started reading the Evans and Novak column when I was in high school in the mid-1970s. Yes, he's conservative. But he's nobody's hack or lackey, with a career spent busting the butts of people on the Right as well as Left. (That's how you know those claiming he was hauling water for GWB in the Plame affair are either liars or ignorant.) Novak's memoir, The Prince of Darkness, might be the finest book on politics and journalism of the post-WWII era.

Here's wishing a great weekend to one and all.

BCE Deal Looking Good Right Now

With the Clear Channel deal getting new terms agreed to by the parties involved, the chances of the BCE (BCE/NYSE) deal going through look improved. The shares have traded up, erasing the stock as an arbitrageur play at this point.

In a stroke of dumb luck, I didn't buy BCE as a takeover candidate. I just thought the market viewed it as a no-growth legacy phone company. I liked the idea of the company moving more and more into its "growth" businesses -- wireless and high-speed Internet, for instance. Throw in a good dividend yield and stock repurchases and I willingly took a chance.

Oh well, this is a reminder that most any stock that's undervalued could find itself in play.

And I'm reminded of the old saying that the Good Lord looks out for drunkards and fools. I'm not the former thought I often qualify as the latter.

Just Remember to Keep Rewarding CBS Shareholders, Les

I don't know, one way or the other, whether CBS (CBS/NYSE) buying Cnet Networks is a good move or not. At least one analyst in the linked Bloomberg report thinks Les Moonves & Co. are paying too much.

It's a bold move, and potentially a great one, since Cnet is a profitable business.

But I'm gratified as a CBS shareholder that Moonves says buying Cnet won't threaten future dividend increases. Up to this point Moonves has been focused on rewarding shareholders, and has boosted the dividend several times.

Even though CBS has traded down this year, and is slightly below my entry cost, I'm willing to be patient. Why? Because of the so-far investor-friendly management and the stock being undervalued in the face of a declining advertising environment. Things should pick up -- along with the stock price -- next year.

I sort of favor the idea of Moonves selling off the publishing business, the outdoor advertising business and maybe even the radio stations. Just get rid of everything except the broadcasting company and then sell that. (All at good prices, of course.)

Yet, in all fairness, Moonves hasn't publicly indicated any intention of doing that -- not that he would. Besides, I sometimes think Moonves loves the idea of taking tired old boring CBS and turning it into a 21st Century media outfit. With a stock price performance eventually exciting us shareholders.

There are no guarantees of that happening. But with the shares yielding more than 4%, we're being paid to wait.

Another Sign of Successful Fund Managers: Humility and the Admission of Mistakes

Southeastern Asset Management released first quarter results for its three Longleaf Partners funds today, along with each fund's letter to shareholders.

Mason Hawkins and Staley Cates run one of the most ethical, not to mention best-performing, mutual fund operations around.

You can tell an investor-oriented mutual fund by whether or not the managers own a significant amount of the fund themselves. And whether or not they're willing to close the fund to new investors when conditions warrant.

Yet another sign is when the managers freely admit their mistakes. Humility is a trait of most every successful value investor -- and the folks at Longleaf are no exception. In discussing the first quarter results for the flagship Longleaf Partners Fund and their International Fund, Hawkins and Cates call their investment in UBS "a mistake" and explain why. (I note they still hold it.)

I try to write this blog in a non-hype fashion. I'm at least partially successful in that attempt because I've received several emails from readers since launching the site in 2005 telling me they appreciate my laid-back approach. I spend as much time here referring to my so-far losers -- especially the Japanese consumer lenders and Media General -- as I do my winners.

So I'll almost certainly never equal the longterm success of Mason Hawkins and Staley Cates. But I can try to duplicate their willingness to be humble and admit mistakes. Like many things in life, it's a work in progress.

Doris Buffett, the Sunshine Lady

I caught Doris Buffett, sister of you-know-who, on C-SPAN's "Q & A" program Sunday night. Brian Lamb conducts these interviews, and they're consistently among the best found anywhere. (In a world of self-absorbed cable TV talkers, Lamb and Charlie Rose on PBS are to be treasured, IMHO.)

Doris Buffett talked about her involvement with The Sunshine Lady Foundation, a private, family foundation incorporated in 1996. She's 80 years old, a mother and grandmother, and gosh, what a sensible, down to earth lady. When the interview started I didn't know if I'd watch the whole thing because I didn't know anything about her and her foundation. But it was a treat, and I bet Ms. Buffett is a treat much cherished by her family and friends.

You can watch the interview or get a transcript here.

During "Q & A," Lamb doesn't just ask about what the person does now. That is to say, he talked a good deal about the Sunshine Foundation -- most of the interview, of course. But you also gain insight into the person's motivations, what makes them tick, their background, where they've lived and so on.

Thankfully, Lamb brought up Warren Buffett, but in no way was the interview about Doris being Warren's sister.

On the other hand, Lamb brought out from Doris the immense love that she and her siblings had (and have) for their late father, Howard Buffett. I've read Warren Buffett speak of the devotion he's had for his father, and the quality of man he was in shaping his children's character. Brian Lamb asking Doris Buffett about her father was a nice touch to a delightful interview.

Greenburg: AIG "in Crisis"

I'm not an AIG shareholder. But I can't help but wonder how many AIG shareholders wish Hank Greenberg hadn't lost control of the company in 2005.

And I'm wondering if we'll see Greenberg attempt to take control again. He owns 9.8% of the stock. If he gets some of the top shareholders to back him, he's in a good position to make a run.

Greenberg called earlier today for the annual meeting to be postponed, and appeared on CNBC this evening. He wants the annual meeting delayed so the shareholders can take time "to consider" the impact of AIG's lousy past two quarters. Maybe he wants the time to line up his chips and make the run during a re-scheduled AGM.

In that case, the shareholders need to ask themselves how much (if any) of AIG's troubles were baked in pre-2005. Or if, as Greenberg-loyalists will doubtlessly stress, the troubles are the result of terrible management post-Hank.

One thing looks certain. With Hank Greenberg owning nearly 10% of the company -- and with a company as big as AIG, that's A LOT of money -- we know his interests are aligned with shareholders.

How Much Worse Will the Global Slump Get?

I caught Larry Kudlow's CNBC show Friday evening, which included Gary Shilling on the show's roundtable. Shilling said we'll NOT see a pick up in the second half of this year and sounded like there's more bad stuff to come.

Some on the panel laughed off Shilling. But my recollection is he appeared on Kudlow's show forecasting the housing slump before most anyone else. And the perma-bulls snickered at him then, too.

Well, Shilling got the last laugh on that. And, besides, he's a man of substance and worthy of listening to. I'm not sure he calls himself a value investor, but he strikes me as someone trying to take the facts and see the world as it is -- instead of confusing optimism with being a virtue.

Referring to the troubles AIG reported at the end of last week, Shilling said AIG management probably doesn't even know how much toxic financial waste (my term) is on their balance sheet. THAT sentiment will sound familiar to anyone reading this blog regularly because I related the same belief from Francis Chou's latest letter to shareholders.

I don't know if Gary Shilling reads or even agrees entirely with Ambrose Evans-Pritchard. But Evans-Pritchard's column in the Daily Telegraph certainly rhymes to my ears with some of what Shilling's been saying:

The avalanche of bankruptcies has begun. Six US companies of substance have defaulted on bonds over the past fortnight, against 17 for the whole of last year.

As a "non-believer" in the instant rebound story, I am not easily shocked by gloomy reports. But the latest note by Standard & Poor's - The Bust After The Boom - gave me a fright.

I don't know how much worse things will get. Or even if they'll get worse at all. That's not my game. I just try to buy stocks that will endure economic slumps until times get good again.

In the meantime, I read, read, and read some more.

The Great Donlan

Thomas G. Donlan of Barron's is THE BEST editorial writer around, for my money. (And since I'm a paying subscriber to Barron's Online, it really is for my money.)

I probably like Donlan because his views strike a chord with my own libertarian streak. Some may think he's a right wing conservative, though those folks probably didn't read his editorial sympathetic to possibly impeaching the current US President over government wire tapping.

Some of my favorite editorials concern a federal government energy policy (the best policy is no policy) and the nomination of Janice Rogers Brown to the Court of Appeals for the District of Columbia (she was right in saying the New Deal was an advancement of socialism).

This week's issue of Barron's contains another winning editorial (scroll down):

In 20th-century America, gold was the first good money to go. First, it was driven out of circulation by a flood of paper; then the government confiscated much of the gold its citizens were hoarding.

Silver dollars were the next driven out, and silver quarters and silver dimes weren't far behind. In 1965, it cost more than 10 cents worth of silver to make a dime. First, the government made it illegal to melt down coins, then it took the silver out.

Pennies were next. Until 1982, there was enough copper in a penny to pose a temptation to melters and hoarders.

The pennies made after 1982, though intrinsically almost worthless at the time, now contain more than a pennyworth of zinc and copper. And there's more than five cents worth of copper and nickel in a nickel coin.

Since 2006, it has been illegal to melt down pennies and nickels for their metal; now there are active proposals to substitute baser metals for zinc, copper and nickel.

There is a better alternative: Create good money, and maintain its value.

See what I mean?

Many wonder (and worry) about Rupert Murdoch's plans for Dow Jones. I certainly hope those plans include keeping Thomas Donlan at Barron's.

Trash Talking in The Globe and Mail

Rob Carrick of The Globe and Mail has a good piece about value investors sorting through the trash of Bay Street (Canada's Wall Street). Here's a bit:

Torstar seems to be richly deserving of its consensus “underperform” rating and, in fact, investors who heeded this warning in recent days might have been spared the stock's most recent plunge. Still, Torstar has some influential fans. Noted value investors like Francis Chou, Prem Watsa and the Cundill division of Mackenzie Financial have made the stock a significant portfolio holding, and The Successful Investor newsletter rated it a “buy” in its May edition.

My Torstar exposure is limited to my Fairfax Financial position (which, as I remind you from time to time, has become a free ride for me).

Maybe I'll buy it sometime, but right now there are other stocks tempting me more. And maybe my experience with Media General has me leery of newspaper-related stocks.

One of those is enough. At least for now.

Five for Friday

To help get you off to a good start on your weekend reading, here are five links you might check out:

• Templeton's Mark Mobius says South Korean stocks are cheaper than other emerging market equities, and the currency is undervalued as well. Bloomberg reports the Templeton Emerging Markets Fund (I think they're referring to the closed-end fund on the NYSE) is up 23% over the past 12 months.

• Cundill's David Tiley talks to the Financial Times about attractive value opportunities in Italy. Many Italian companies are controlled by families and/or cross-share holding structures (sounds familiar to anyone investing in Japan), yet he says they often pay good dividends. "We are being paid [to wait for change]," he says.

• Bloomberg's Katherine Burton discusses hedge fund managers running 'concentrated" portfolios -- describing Jon Wood's 40-position portfolio as an example. I've seen concentrated --  or "focused" -- portfolios defined as few as 10 and as many as 50 holdings. I believe 20-25 positions is well diversified, but what do I know? Walter Schloss used to hold 100 names, and the guys at Tweedy Browne do, too. You'll find information on Eddie Lampert and Whitney Tilson in the linked article.

• Regular readers know I've been keeping an eye on Lonrho PLC, the pan-African conglomerate trading on the London Stock Exchange. It's not a big company and its hard to find any in-depth analysis of it. But the African sub-continent GDP has been growing at approximately 7% and could be -- note could be -- a great way to play emerging market growth. Especially with everyone and their brother keen on Mainland China and India. Yet as the post-election crisis in Zimbabwe shows (not to mention the earlier political turmoil in Kenya), investors face significant risks and corruption. Undaunted, Lonrho Chairman David Lenigas explains why he wants his company back in the former Rhodesia.

• Among this blog's most-read non-stock-picking posts dealt with building a men's wardrobe. Here's a 2003 article in the same vein by Jeffrey Tucker of the Mises Institute. I especially agree with his point that (assuming you don't have a limitless budget) you should pay up for suits, sport coats and shoes. You can then get plenty of shirts, ties, pants and socks from less expensive sources.

Enjoy and have a great weekend.

Soros the Investor, the Philosopher

Like many people my age, the first I learned of George Soros was reading one of John Train's "Money Masters" books some years ago. My recollection is that Train's profile of Soros was favorable, as it should have been since Soros has always been a successful investor. He is something of a master in matters of global finance, by any objective measure IMHO.

I also saw Soros profiled on the old "Adam Smith" show on PBS, probably back in the early 1990s. Again favorable.

Soros, of course, has received some unfavorable coverage the past few years. Almost entirely because he's stepped into the political arena via his comments and donations. Most, if not all, of the criticism he's received is because his politics are left of center, and he's been a vocal opponent of the Iraq war. Those facts along with the fact he's filthy rich makes him a target.

Some of the criticism may be valid. But some has been embarrassingly stupid. I heard one talking head, who should know better, say some years ago that Soros and Warren Buffett were trying to bring down the US Dollar.

And he uttered this nonsense as though they had the power to do so.

I think another cable talking head has used the word "evil" to describe Soros. Whether this person really believes that or not I don't know. Personality-driven news and made-up threats are good for ratings, because the dumbed-down, reality-show, MTV kind of programming works for 24-hour news channels. And casting Soros as a villain -- wealthy and with an accent right out of a 007 thriller -- makes for a narrative that sells in some circles.

I'm no expert on Soros. I get the impression he's more of an enthusiast for the Welfare State than me, but perhaps I'm wrong. I will say, though, that his efforts to persuade public policy in the direction of ending the insane War on Drugs should be applauded. And, in my view, worthy of the Presidential Medal of Freedom.

I got to thinking about George Soros today when reading Matthew Lynn's spot-on Spectator piece on the man:

‘I have been fortunate in making a lot of money and spending it well,’ Soros writes. ‘But I have always wanted to be a philosopher, and finally I may have become one.’ In a sense that’s true. Just not a very good one. And, as Soros himself appears to sense, if it weren’t for the money, no one would be very interested in the philosophy.

Like I said, spot on.

Templeton Fund Managers Profiled

Sonita Horvitch has been profiling mutual fund managers for the Financial Post in Canada for some years. This column has her interviewing two managers for Templeton that I'm not familiar with (not that that means anything much).

But Templeton is a venerable value firm with a global approach (and admittedly a huge amount of assets to put to work), and I've alway enjoyed Horvitch's reporting. Or at least since I found her on the Internet in the late 1990s.

The linked column reveals some of the managers' stock picks -- telecoms and insurance firms among them.

75th Anniversary Edition of Graham and Dodd's Security Analysis to be Published

McGraw-Hill will publish Security Analysis: The 6th Edition this coming October. Several value investors are joining forces to update and refresh the 1940 version of the book, considered by Warren Buffett and many others to be the definitive version.

According to the press release issued today, Buffett has written a new foreword for the special edition, saying: "I studied from Security Analysis while I was at Columbia in 1950-1951, when I had the extraordinary good luck to have Ben Graham and Dave Dodd as teachers. Together, the book and the men changed my life."

Among the value investors helping edit the upcoming edition is Seth Klarman, who says:

"This is a fabulous new edition of Security Analysis. We have retained the integrity of the original text but added new overviews, as well as commentary on each section. Experienced value investors and novices alike will have much to gain from this revised classic. While the world has changed in more ways than they could have imagined, so much of what Graham and Dodd taught is completely relevant today. Their insights still illuminate the way for modern day value investors. It is an honor and real privilege to collaborate on this edition of Security Analysis."

Another is Jim Grant:

"Ben Graham could write, and he could invest. He could write about investing. He produced an investing book, Security Analysis that promises to endure for as long as there are stocks and bonds. And he wrote that book while suffering the torments of the 1929-32 bear market. He is my hero."

Sounds like something worth checking out this fall, that's for sure.

Just Because You Love A Product Doesn't Mean You Buy The Stock

People used to misquote Peter Lynch, the legendary former-manager of Fidelity's Magellan Fund. He said (I'm paraphrasing) that you and I as ordinary individuals can have excellent insights into companies -- through our knowledge of which products we buy and use regularly.

Some took that to mean that if you love Product A, you should buy Product A's stock.

But Lynch only meant that our knowledge of good products -- that we buy Product A but not Product B -- was a starting point from which we do further due diligence.

Ideally, we'll find that Product A's stock is undervalued. And could enjoy the company's products and ultimately see its stock benefit our brokerage statements.

But that's often not the case -- especially with some hot names.

One of those names over the years has been Starbucks. And I reflected on Starbucks and Peter Lynch when reading Michael Sesit's new Bloomberg column mentioning the company (scroll down to the bottom).

I drink Starbucks coffee regularly. I rarely stop by their stores, much less hang out in them. But I buy this Starbucks blend in my local grocery store every week.

So I'm a loyal customer. Yet I've never been temped to own the stock. It's always been a growth story and I'm a value guy. Now that Starbucks is, from what I read, having less-than-superb results maybe it will eventually become a "value stock." Some say Wal-Mart has achieved (or sunk to) value status, though I've passed on it as well.

Anything is possible. In the meantime I'll continue enjoying the coffee.

My Fairfax Free Ride

One of my favorite developments in investing is seeing a stock double in price. This lets you sell enough to get your original capital back -- with the rest still being a full portfolio position.

The the stock becomes a free ride. It can keep going up. Or it can go down. Either way, you're OK.

Fairfax Financial Holdings (FFH/NYSE) is a case in point. I've reported on Controlled Greed previously that I've sold enough to get my original investment out of the company (I've owned it for years and recommended it on this blog in 2005).

Fairfax reported fine results Thursday. Then the stock sold off today.

I don't know what the future holds. That's true for everything, and I often feel like this site should be named "I Don't Know" instead of Controlled Greed.

I do know that some really smart folks have been recommending Fairfax lately. And buying it, too. And, it might turn out to be a great stock from here on out. I sure hope so, because it's still a full portfolio position for me. But Fairfax was a much better buy when it was trading for less than US$150 -- and there was even a short time when it was under US$100.

So I'm holding here.

I just wish every stock performed for me like Prem Watsa's. Thank heavens for him and Fairfax. It makes it much easier suffering from Media General, Mueller Water, USA Mobility and my Japanese consumer lenders.

Berkshire Hathaway Meeting This Weekend

With Berkshire Hathaway's annual meeting taking place this weekend, some random thoughts come to mind.

I've never attended one of these, but I'm sure they're a blast.

I wonder, though, if the truly long-time Berkshire shareholders feel sort of like the fans of a rock band who they used to see in small clubs and other venues. Then the band gets really, really big and seeing their favorite act means "sharing" the experience with massive crowds in huge arenas. Though I'm not denying Buffett's and Munger's investment wit and wisdom surely deserves as large an audience as possible.

I've read that this weekend's gathering is, at least in part, being carried live by CNBC and the Fox Business Network (I don't know about Bloomberg).

I remember when I first subscribed to Outstanding Investor Digest in 1991, it was one of the few, if not only, publication running lengthy transcripts of the Q&A session. I don't remember the financial media giving the Berkshire meeting much coverage, let alone the general press. OID's coverage of the meeting was really a competitive advantage for the publication, but I can't imagine it is any longer. (I stress that OID remains a great publication for value investors, but its publication schedule is lousy.)

In picking stocks, investors have hits and misses. Then they have those stocks they missed by not buying. That was certainly the case with Berkshire Hathaway at the height of the Internet bubble. Reading and seeing second- and third-rate investors putting down Buffett was clearly the bell ringing in hindsight. And it shouldn't have taken hindsight to see that.

I haven't looked at the company closely lately, but my impression is that Berkshire is more or less trading at roughly fair value. I've got a few names on my dance card I'm thinking about buying -- but Berkshire isn't among them. Maybe I'll look back and regret that, too.

Anyway, if any of you reading this are heading out or in transit to Omaha, have a safe journey there and back.

And a great time in between.

Joe over at The Stalwart is going, and I'll be sure to read his thoughts about the gathering. He has a consistently interesting take on various topics and, while I don't know if he's a value player or not, getting his perspective on the Berkshire Hathaway annual meeting sounds more than worthwhile.

GM Posts $3.3 Billion Loss

Yet I patiently remain a holder. I may be brave, crazy or stupid, but if I wasn't prepared to see results like those announced today I would have sold last fall. When it was apparent we were headed for a downturn, if not full blown recession.

General Motors (GM/NYSE) has a great non-US business. Clearly, more work -- read cuts -- needs to be done in North America.

In short, GM shares are trading for less than my personal cost in the low $30s (I first bought these shares in early 2005, before launching Controlled Greed). And they are also below the $26.75 price when I recommended them in April 2005.

But if I didn't own the stock, I'd buy it here, putting 4% to 5% of a portfolio in it.

Should you? Only you can decide that. Just do your own due diligence before jumping in.

Harbinger's "Midas of Misery"

By way of Sivaram's Can Turtles Fly? blog, I found this BusinessWeek feature on Philip Falcone, founder of Harbinger Capital Partners.

Those of us shareholders in Media General (MEG/NYSE) know the name because Harbinger owns more than 18% of the Class A shares. And also because last week Harbinger succeeded in electing its three nominees to Media General's Board of Directors.

The BusinessWeek article makes a good read. My advice is to print it out because it's fairly long. My printer spit out six pages and I have a hard time reading stuff that long on any computer screen.

Anyway, you'll find lots of interesting material in this profile. It touches on Media General but there's lots more worthy of your time.

Reviving Brooks Brothers

Anyone with any appreciation for traditional men's clothing wishes for Brooks Brothers to regain its past glory. The popularity of "dress casual" some years back, among other things, certainly took a toll on the company.

The Daily Telegraph reports on Claudio del Vecchio's efforts to restore the old-fashioned standards that made Brooks:

"We changed everything," says del Vecchio. "A lot of it we changed back to what it was before."

An interesting bit is that del Vecchio claims the late Gianni Agnelli -- jet-set fashion icon and Fiat chief -- wore Brooks Brothers shirts.

Oil Storage: World Point Terminals

I don't know anything about World Point Terminals -- but I'm a huge admirer of Peter Cundill. According to this from The Globe and Mail Cundill has served on the company's Board since 1998:

This little company, which seemingly trades by appointment and has a market capitalization of about $350-million, arrived on the Vox radar screen because it's had a healthy little run over past month, rising 40 per cent for no obvious reason. Mind you, it also fell by 70 per cent before it bounced back, again for no immediately apparent reason.

The stock is not covered by any analyst, which makes it hard to get a grasp on but also possibly interesting if you can figure it out. I submit that for these reasons and more, it's worth a careful look.

World Point Terminals trades in Canada. The linked story says Peter Cundill owns 10,000 shares.