People Are Coming for Warren Buffett

New allegations, kind of new, that came out last week, saying that Warren Buffett has bought and sold stocks in his personal portfolio in the same quarter as Berkshire Hathaway traded those same particular stocks, which is potentially scandalous because Warren has often said that he did not do that, because that would be a conflict of interest. And he is, generally speaking, known as somebody who has been very, very strict about ethics and about trading responsibly and about not having these kinds of conflicts of interest within his personal and business life and expects that of his employees and of others as well.

Let's talk all about this and get a little bit of the internet's reaction and talk a little bit about how much weight this scandal carries.

I'm Carly Riley. I cover tech and finance and especially I love a little scandal. I have been covering the Sam Bankman Fried trial for the past month and a half, so I talk a lot about that. If you have been enjoying this channel and enjoying these shows, please do consider subscribing to the channel. And of course, if you like this video, please do like and comment below.

I'm very curious your thoughts on this particular situation.

All right. Diving in here, let's give a little bit of context here, which is that Warren Buffett, of course, CEO of Berkshire Hathaway, which is really a holding company at this point for a whole bunch of other companies and stocks. Warren Buffett also has his own personal trading portfolio. And what is in that personal trading portfolio has been a very well-guarded secret.

In fact, Alice Schroeder, who wrote a biography, a sanctioned biography of Buffett a number of years back, said that she was given access to everything in Buffett's life except for his personal trading portfolio.

And yet last week, Pro-Republica reported on some of what was held in this personal trading portfolio, which is what has led to this scandal.

So how did that happen? Somebody illegally accessed decades of, I guess, Warren's IRS records and released them to Pro-Republica. So that's probably a separate conversation, is like this whole thing has been illegally gotten. But that being what it is, we now have gotten a glimpse into his personal trading records.

So let's talk a little bit more specifically about what Pro-Republica found, at least the scandalous bits of it.

So scandal number one, Buffett has long been a fan of Wells Fargo stock. This is no secret. Berkshire Hathaway owns a ton of Wells Fargo stock. And Warren was talking a lot about Wells stock back in 2009. During the wake of the 2008 financial crisis, Berkshire owned and started buying a ton of Wells stock in 2009. And that caused the price of Wells Fargo stocks to increase pretty heartily.

The Wells Fargo CEO said at the time that the stock pumped about 20% because of Warren and Berkshire Hathaway's endorsement. Well, the reports now out show that on April 24th, I believe, 2009, Warren sold about $20 million worth of Wells Fargo stock from his own personal portfolio, which would have come around the time that this pump had happened as a result of Berkshire buying the stock and Warren talking about it really publicly.

Now, to give a little context, at that time, Warren was worth about $40 billion. So selling $20 million of Wells Fargo accounted for about 0.05% of his overall wealth.

But still, second in October of 2012, Buffett sold $35 million worth of Johnson & Johnson stock. And in that same quarter, it appears that Berkshire Hathaway also sold off a bunch of Johnson & Johnson stock. Now, we don't know the exact timeframe for these, or at least for the Berkshire Hathaway sell off. So we don't know who did this first. But again, the point being that this happened in the same quarter as one another, which seems to violate the policy that Warren has always been very strict about. And there is an ethics policy at Berkshire Hathaway. And these trades should not have been happening in the same quarter.

And then finally, he sold $25 million worth of Walmart stock out of his personal accountin the same quarter that Berkshire was trading Walmart stock. Now, what's interesting here is Berkshire was actually buying Walmart stock that quarter, and Warren sold Walmart stock out of his personal account. So if anything, that maybe makes him look good. Again, they shouldn't have been trading it in the same quarter. And yet, you could make the argument that Warren, in anticipation of the fact that he knew Berkshire was going to be buying more of it, sold it to reduce his potential conflict of interest there.

Unclear, but again, just another example of when Warren was trading something at the same time that Berkshire was trading something. And again, the final two pieces I'll mention here is, first of all, he's always been so secretive about this personal portfolio. In light of some of these facts, that seems more suspicious. And again, he's always been such a reputation is everything guy. That is his whole thing. So this seems hypocritical to folks because he quite famously, was it when he was bailing out Lehman Brothers? Folks may know, I think it was Lehman. He quite famously told the press, and I think he maybe said this to Congress, that what he had told Lehman Brothers employees, if that was the bank, you all can correct me, but was basically that, or Bear Stearns, I think it was Bear Stearns, in any case, he basically had said that if you lose a dollar for this firm, I will be forgiving. If you lose a shred of reputation, I will be ruthless.

<Warren Buffet Audio Clip> - "Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless".

So that has become a part of the Warren Buffett mythology, is like super high integrity. So when you have this super high integrity, you leave very little room for anything that appears to be not following the rules you set out.

Okay, so let's talk a little bit about the internet's reaction to this. One commenter said, "First, Dalio, now Buffett shows how we shouldn't put people on a pedestal." Well, first of all, you probably shouldn't put people on a pedestal, but what this is referencing here is a new book that has come out called 'The Fund'. It's by a New York Times investigative reporter that is, I'm only 20 pages into it. I have read the first 20 pages of it. I'm quite excited to read it. But I don't know fully, but it's essentially like a takedown of Ray Dalio and Bridgewater Associates, his hedge fund. It's still like it's overstating things to me a little bit.

Ray Dalio, in New York Times investigative journalist, has written an entire book, as far as I can tell, like piece by piece dismantling the overall just like nice guy image that Ray Dalio has created for himself. I mean, Ray Dalio, not just similar to Buffett in that he's got this Oracle quality to people and this sense that like he can just pull all these disparate strands of world history together to form this cohesive vision of the world. And I think that's in question in this book by a New York Times investigative reporter, which is a little bit distinct from like Warren Buffett made four questionable trades over a 20 year career in his personal account that account for literally less than 1% of his overall net worth and trading activity.

But okay, okay, I understand.

Comment number two here, "Buffett is not as squeaky clean as he portrays. Let's talk about the silver trade overseas when he was front running silver trades. CNBC is doing cover for him,". This comment had come from a CNBC video where they were talking about this Buffett situation.

I think this is fairer than the last comment. You know, Warren Buffett's worth like $100 billion. You don't get $100 billion without being a bit of a shark. So I agree that he's probably not as squeaky clean as like the folksy aphorisms would suggest right? The homely glasses mask a man who is very competitive and very determined and ambitious and all these things. So I think that's fair.

I don't know about this silver trades, front running silver trades specifically. So yeah, I can't speak to that. But in any case, I do want to at the end of this video, I want to talk a little bit more about this CNBC is doing cover for him comment because I did see a number of things like that and I think it's worth addressing.

But moving on, I personally, this does not affect my opinion of Warren Buffett all that much. I want to give a couple of key reasons for this. Somebody else shared this opinion. They said he has built so much goodwill with me over the years by letting me invest with him and teaching me so much, that whatever comes of this story will not begin to put a dent in my opinion of him.

And that's sort of where I am. Again, admittedly, I'm a Berkshire fan. I went to the Berkshire Hathaway shareholder meeting in 2016. I don't know if I've said that already, but it was just a wonderful experience. Like I haven't been back. Maybe I'll go this year. I think 2024 is probably the year I go back to the Berkshire Hathaway shareholder meeting because Charlie Munger is 99. Warren is I don't know, 95. I don't know how exactly he is at this point. But point is, they don't have that many years left to put on this dog and pony show. And I would like to go one more time before they die.

So showing my bias, I do own some Berkshire Hathaway stock. Not very much, but a little bit. But here's my thinking on this is first and foremost, 99% of Warren's wealth is in Berkshire Hathaway. 99%. Like plainly his incentive is to make Berkshire Hathaway do well, and do well over anything he could be doing on the personal trading side. So just on the surface, I feel very confident that Warren cares so much more about Berkshire than he does about his personal wealth because Berkshire is his personal wealth.

Now, Charlie Munger, who is his business partner and been his partner for years in Berkshire Hathaway, said as much on CNBC, I think a couple of days ago, he went on maybe it was a day ago and just said:

<Charlie Munger Audio Clip> - "I don't think there's a slightest chance that Warren Buffet is doing something that's deeply evil to make money for himself. He cares more about what happens to Berkshire than he cares about what happens to his own money. He's giving all his own money away. He doesn't even have it anymore,".

Warren cares more about Berkshire Hathaway than he does his personal money. No question, bar none. Charlie also went on the acquired podcast, if folks are familiar with the acquired podcast weeks ago, maybe even a month ago. I don't know. I don't know when it was. I listened to it a couple of weeks ago, and said that one of the few disagreements that he and Warren have really had through the years is that Charlie would have traded with more leverage and done a little bit more margin trading than Warren was ever comfortable with.

And he said specifically that Warren is so protective of Berkshire Hathaway shareholder money and he doesn't want to take any level of unnecessary risk with their money, even if that risk is relatively small compared to with the potential gain, like Warren won't do it. And Charlie was saying he personally would have taken more risk than Warren was comfortable with, which again, he said this before this scandal broke out. Clearly, this is a man who has really high integrity when it comes to not wanting to mess with Berkshire Hathaway shareholder money.

Also another disagreement that Charlie and Warren have had, though I don't think it was a big one, was around Berkshire Hathaway buying a private plane, which they did at one point. They bought a used private plane for travel for Berkshire Hathaway executives, finally, after many, many years of Berkshire Hathaway success.

There are some very funny comments in Berkshire Hathaway shareholder letters about the decision to buy this private plane. I will do a search and I will try and put them in the show notes. Sometimes it's kind of hard to find, but there's this anthology that compiles a ton of Berkshire Hathaway shareholder letters or all of them from the years and it compiles them thematically as opposed to chronologically. So all of the notes about the private plane you can read in one spot and the progression of the plane, it's so funny.

So anyway, I do recommend that.

But again, speaking to the super high integrity they have where it was a real, they were really debating back and forth about if a private plane for the whole company was a waste of money and was extravagant or was meaningful or whatever. Again, the opposite of Sam Bankman-Fried in the sense that actually lives primarily by the ideals that he has set out, which brings me to the fact that in addition to 99% of his wealth being in Berkshire Hathaway, he's giving away 99%, 100% of his money. When he dies.

And that really brings me to what we're talking about in this Pro-Republica report is a handful of trades over the course of a 50 year career. And who knows, obviously, we don't have all of the records, all of the reports, etc, etc., but it's so easy to look at a handful of moments, isolate them and say, oh my gosh, look at the picture this paints. And it's just a very non comprehensive picture.

And that, for what it's worth is essentially what Andrew Ross Sorkin said on CNBC, when he got the comment when he saw the comment above of like CNBC is doing cover for him. Another commenter said, "Yes, yes, Andrew, as a financial journalist, you mustn't on any account draw any conclusion that may be offensive to Mr. Buffett,". Talking to Andrew Ross Sorkin and I'm like, Oh, shut up. He's not not drawing a conclusion that's offensive to Warren Buffett.

He's not drawing a conclusion without enough facts. We just don't really know enough about the situation.

I get it. He has made public comments in the past. We clearly can see that there has been some level of private behavior that doesn't perfectly line up with that public with those public statements. Like I said, he's definitely a shark. He's not as folksy as he seems. He's probably done some stuff that toes up that teeters close to a line, etc, etc.

But by and large, I mean, we do not have enough information here to draw some overarching picture of the Warren Buffett mythology bubble has burst, right? Everybody needs to sit down.

But I want to close with this. This was my favorite comment on one of the videos about this whole situation. "Buffett doesn't respond because..." Buffett hasn't responded to any of this. "Buffett doesn't respond because one, he doesn't remember his email password and you need to fax him. And two, he's 93 years old. He probably either forgot he runs Berkshire Hathaway or didn't switch accounts on his Robinhood app. No wrongdoing here,".

Now, obviously, this is a joke. But like, I agree. He's 95, whatever 93. Leave him alone. You know, I think he's fine.

So that is that. Thank you all so much for watching this video. If you enjoyed it, like I said, please do consider subscribing to the channel or liking this video and definitely comment. I'm curious what you think.

Do you agree with me?

Do you think this is more of a scandal that I'm making it out to be?

Are you a Warren and Charlie Hader?

Let me know. And if you're listening to this on the podcast, come on over and join the conversation on the YouTube comments. You know, we go both ways. All right, folks. Thank you so much. This is my last episode for the week, but I will be back on Monday. So I will see y'all then.