Review by Alan F Kay of Dear Mr Buffet What an Investor Learns 1269 Miles from Wall Street

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Dear Mr. Buffett – What an Investor Learns 1269 Miles from Wall Street by Janet Tavakoli, Wiley 2009

President of a Chicago-based firm that consults to financial institutions, institutional investors and hedge funds, Janet Tavakoli, met with the “Sage of Omaha,” Warren Buffett, when he was 74. Owner of Berkshire Hathaway, already a billionaire at age 60, Buffett at 74 was the first or second wealthiest US businessman. Sometimes that accolade was owned by Microsoft’s Bill Gates, and later Buffett transferred a substantial fraction of his holdings to Gates’ global philanthropy. Buffett had learned during his long career how to wisely make large acquisitions and to deal with employees and investors successfully and as fairly as possible. Tavakoli learned from Buffett how better to deal with the financial institutions, institutional investors and hedge funds. Well before the meltdown of the financial industry, her writings gained substantial acceptance by an increasing number of those following the developments that ultimately took trillions of dollars from the middle class and put it into the pockets of the wealthiest 1%.

The reviewer, Alan F. Kay, may be breaking the rules here, but his experience in 1983, long before Buffett and Tavakoli met, shows how he learned first hand what was the beginning of the corruption of the biggest banks and reinforced the later findings of Tavakoli. Well paid by Citibank were the people in “On-Line Markets” (OLM), the company Kay organized to work exclusively for Citibank under top executive Alan MacDonald. OLM’s assignment for its client Citibank was evaluating and recommending generally large acquisitions, over $100M/yr each. In 2 ½ years, OLM examined over a hundred potential acquisitions for Citibank. Insiders knew that Citi’s deep pockets were consistently filling and, light-heartedly, knew among other things that categories of potential acquisitions examined by OLM were nick-named the three “I’s” –(1) Insurance, (2) Information-technology, and (3) Individuals with high net worth.

Only commercial banks legally create money (out of thin air, no less). Aggressive banks eliminating all regulations that might hinder their growth over the course of time led to the gigantic meltdown. Among the largest of the too-big-to-fail was Citibank. I had no ownership in my client’s corporation when I stopped working for it and no idea that a meltdown was eventually going to occur, but the beginning of Citibank’s corruption was clear to me in the 2 ½ years working for MacDonald. I learned that ordinary customers were not allowed to share at all in Citi’s financial success and more recently came to understand that a strong legal case can be, but has not yet been, made that Citi and other giant banks were for years ignoring their fiduciary obligations to their customers.
OLM working for Citi happened 27 years ago, 20 years earlier than Tavakoli began to notice and write about the impending meltdown. From early in his business career Kay has believed that aside from minimal limitations of business financial requirements, customers come first (see www.alanfkay.com). He has admired how Buffett has managed his work, his money, and the problems of the world and also appreciates the value of Tavakoli’s work. Kay believes that he and Tavakoli, unknowingly, lived and operated in different eras about 25 years apart, but with similar attitudes on the fundamental purposes of our lives. (See Ch. 3.)

As well understood by Buffett and Tavakoli, among dozens of corporations and billions of dollars, fair-minded CEOs who carefully analyze terms of stock options, bonuses, and severance payments (as subjected to FASB accounting), can achieve judgments that substantially strengthen their companies and reduce or eliminate corruption and scandals. In her book, Tavakoli explains that she runs a hedge fund with many features chosen to protect her institutional clients that cannot be revealed and has repeated the following statement by Buffett, “The five most dangerous words in business may be ‘Everybody else is doing it’ … Let’s start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of your local paper… Your attitude … expressed by behavior as well as words, will be the most important factor in how the culture of your business develops.”

Buffett and Tavakoli accept the value of properly organized and operated hedge funds, but recognize that under the rules that have been put in place over the years, many investors who have participated in hedge funds were destined to suffer losses. Even huge and sophisticated financial organizations may succumb to bad choices. In the late 1990s, Long-Term Capital Management (LTCM) was the largest hedge fund in the world, until it lost around $2 billion on its highly leveraged investments. The Federal Reserve System engineered a bailout of an otherwise threatened consortium of 14 banks and investment banks. Many major financial organizations, like Merrill Lynch, initially interested in participating, were not accepted. (See Ch. 4.)

The reviewer, Alan F Kay, recommends this book to all and is personally fascinated by the possibility of meeting author Janet Tavakoli.

Review by Alan F. Kay, Ethical Markets Media Advisory Board