The Golden Haves

Lately, I have been trying to explain to my eleven-year-old son Gabriel the astronomical differences between people’s income.

Microsoft founder Bill Gates first penetrated Gabriel’s consciousness a couple of years ago, when his father served as a warm-up act to Gates at a large conference sponsored by the Danish government. Ever since, Gabriel has been fascinated by the seemingly infinite possibilities of having $60 billion.

For example, whenever I tell Gabriel that something is unbelievably valuable (even, say, a great painting in a museum), he invariably says, “But Bill Gates could buy it, right?” Yes, Gates could buy the whole museum. But then he would just turn around and give it back so everyone else can see it, so there is no point. Gabriel is not entirely convinced.

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Citigroup’s Next CEO

As regards who Citigroup’s next CEO should be, I was going to post one of our “Questions of the Week,” and ask what you think--but then decided that, this time, I want first crack. So here goes.
My first choice: Wells Fargo Chairman Dick Kovacevich. Dick is by just about all accounts the most effective, well-respected, banking executive in the business. He has a proven track record running a large, diversified organization--and he gets results. To put a number on it, Wells has earned more than 16% on its equity, on average, over the past 10 years. Over that period, the company’s earnings per share grew at an average annual rate of 14%. Dick even knows how to do deals and make them work. Plus, he should have no trouble attracting and retaining top talent, and can motivate individuals up and down the organization.

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Buffett could reap gains from credit turmoil: report

Warren Buffett, chairman of Berkshire Hathaway Inc., may cash in from the credit market turmoil and worries surrounding the financial strength of bond insurers, including Ambac Financial Group Inc. and MBIA Inc (MBI.N: Quote, Profile, Research), the Wall Street Journal said in its online edition on Monday.

With more than $45 billion in cash on its books, a triple-A credit rating and years of experience insuring other insurers against catastrophic losses, Berkshire Hathaway (BRKa.N: Quote, Profile, Research) is in a position to provide relief to some of these companies and could get into the bond-insurance business itself, the Journal said citing people familiar with the matter.

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How Long Should Gifts Just Grow?

AS nonprofit institutions have seen donations and investments grow spectacularly in recent years, the urge to keep the money rolling in is being supplemented by a new pressure: make it flow out faster.

Politicians, consultants, watchdog groups and even some philanthropists say that foundations, universities, museums and other charitable institutions often spend only what they must while their coffers expand, partly because of double-digit returns on investments. These “spend it sooner” proponents say that the minimum that private foundations are required to give — 5 percent of their assets each year — has in many cases become the maximum. To really attack social problems, they say, foundations and other nonprofits need to open their spigots much wider.

“There are certain dynamics that take over in terms of behavior, and one of those forces is usually the drive to perpetuate institutions,” said Warren E. Buffett, who is giving more than $30 billion to the Bill and Melinda Gates Foundation with the stipulation that it be spent promptly. “That dynamic — though undoubtedly subconscious — sometimes takes precedence over considering what might be best for society.”

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An Investment Framework

Investors should develop an investment framework which they make their decisions around. They should have tenets by which they abide in order to avoid permanent impairment of capital, while generating above average returns. Below are ideas from various others frameworks that are useful.

“Charlie (Munger) realizes that it is difficult to find something that is really good. So, if you say ‘No’ ninety percent of the time, you’re not missing much in the world.” – Otis Booth

Buy good businesses, which are easy to understand. Investors should look for businesses they would feel comfortable with if the markets were to close for ten years. One needs to understand how a business works and where the company’s earnings power is headed over the long-term. Good businesses generate their earnings in cash; have strong balance sheets, and few competitors. When analyzing a strong balance sheet, make sure to watch for liabilities not on the balance sheet as well.

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