Kapitel 946: Chapter 948: The Ace Up the Sleeve
[Chapter 948: The Ace Up the Sleeve]
In a small conference room within the Firefly Group's administrative district, Warren Buffett furrowed his brow as he quickly read through the investment materials for the Clover Fund.
Buffett had initially thought his request to take a look at the Clover Fund's stock portfolio would be met with a refusal from Eric. After all, it was a company's commercial secret. Even as a shareholder of Firefly Group, if Eric insisted, there was a chance he wouldn't be able to see it.
However, to Buffett's surprise, Eric agreed readily without even requiring him to sign a confidentiality agreement. As he looked through the pages of information, Buffett realized why Eric was so open with him.
The Clover Fund's stock investments were primarily concentrated in three sectors.
The first category encompassed internet tech stocks, with major investment targets including Microsoft, Intel, Cisco, AOL, Sun, and Oracle, making up over half of the total investment.
The second category consisted of telecommunications stocks, such as AT&T, Sprint, and Verizon, accounting for around 30% of their investments.
Lastly, under 20% of their investments were tied up in several large cable companies like Comcast, Time Warner Cable, and others.
In simple terms, these stocks largely comprised the very hot tech stocks of the time.
In recent years, both large investment funds and small retail investors had been chasing after these types of stocks. Thus, even if the Clover Fund's investment portfolio were disclosed, it wouldn't raise any eyebrows.
But in Buffett's eyes, Eric's portfolio seemed haphazard and lacked a solid strategy. Typically, the more complicated a fund's stock portfolio, the stronger its risk resistance. However, that also meant the potential for high returns was typically lower. Diversification in stock investments often aligned a fund's returns with the broader market index.
Great investors always managed to outperform the market. Buffett earned the title of "the Oracle of Omaha," with Berkshire Hathaway's annual growth rate historically exceeding the Dow Jones by more than ten percentage points for decades.
To Buffett, a fund's investment return aligning with the market performed better than merely following the overall market growth. After all, stock market gains indicated the overall growth of the economy; stripping away the influences of inflation and rising prices left little change in actual asset value or purchasing power.
Of course, Buffett understood that Eric was betting on the imminent arrival of a new bull market in the NASDAQ, aiming to capitalize on stock arbitrage, effectively surpassing the "market." Buffett had no issue with stock arbitrage and often engaged in it himself. However, he never held onto high-risk arbitrage stocks for long, nor did he pile into them aimlessly like Eric seemed to be doing.
Yet, upon seeing the total value of the Clover Fund's stock assets, even though his brow remained furrowed, he couldn't help but be impressed. In just two years, the initial investment of $5 billion had appreciated to $9.1 billion.
If Eric could liquidate the entire Clover Fund's stock, minus taxes, along with Firefly Group's own surplus, the company's net profit for the year would exceed $7 billion.
Buffett recalled that in 1996, even General Motors -- North America's most profitable company -- reported a net profit of only $6.88 billion for the year.
As a distinguished investor, Buffett hadn't put down the materials yet was already contemplating how he would invest if he had that $7 billion. Perhaps he should buy out the National Insurance Company, which he had been eyeing for a while, and increase his stake in Coca-Cola. Compared to the high-risk stocks with typically 50 to 60 times earnings, companies like the insurance firm and Coca-Cola would offer the best investment targets for long-term, stable returns.
...
When Eric walked into the conference room, he found Buffett deep in thought or perhaps daydreaming.
Noticing someone sitting down opposite him, Buffett came to his senses, put down the documents, and took off his reading glasses, asking, "Eric, I want to know, what exactly are your plans?"
"This year, Firefly will continue to invest $2 billion in tech stocks. I aim to accumulate capital for the next significant expansion of Firefly Group, which will minimize stock transaction ratios," Eric replied.
Buffett slightly shook his head. "Eric, you haven't experienced a stock market crash. You don't know just how terrifying that can be. I've seen billionaires face a market crash where they could go bankrupt in just a day. The stocks in the Clover Fund -- once a crash occurs -- most might fall below your purchase price in a short time."
"Warren, I'm not a greedy person. I believe I can still gauge the right time to take action," Eric chuckled confidently.
Eric's decision to openly reveal the Clover Fund's stock investment portfolio to Buffett stemmed from his belief that this information wouldn't provide Buffett with any significant insights. His most crucial ace in the hole was his foresight for the future.
While the ups and downs of the NASDAQ might be influenced to some extent by Eric -- resembling a 'butterfly effect' -- the overall economic development trend of the country wouldn't change substantially; Eric's influence hadn't yet reached that level.
Buffett shook his head again and said, "I appreciate a manager's long-term vision for a company, but in my view, you have no need to take such risks right now."
"I'm not taking risks, Warren," Eric spread his hands. "This $5 billion, as well as the planned $2 billion this year, are all surplus funds from Firefly Group itself. Even if I lost it all, it would be a pity but wouldn't harm the fundamentals of Firefly Group. If I were to take risks, I would definitely use investment leverage; turning $5 billion in principal into $20 or $30 billion in capital would be quite effortless."
Though Buffett still deemed Eric's investment too risky, he found himself nodding in agreement with Eric's words.
However, even with the promising profit outlook, Buffett didn't fully support Eric's actions. He preferred to hold the funds in his own hands for desired investments.
Berkshire Hathaway holds 5% of Firefly. In 1996, Firefly Group's net profit was $1.76 billion, and Berkshire Hathaway received a dividend of $88 million. In the same year, Berkshire Hathaway's net profit was only $725 million. In other words, Berkshire Hathaway's 5% stake in Firefly Group brought an annual income of more than 10% of its annual profit. As a diversified investment company, a 10% profit ratio is still very important.
Eric, perceiving Buffett's expression, guessed his thoughts and smiled, saying, "Warren, you could sell the Firefly shares held by Berkshire Hathaway to me based on the recent Wall Street valuation of Firefly at $100 billion. For 5% of the shares, that's $5 billion. What do you think?"
Currently, Firefly Group could hardly come up with $5 billion at once. However, if Buffett or other shareholders were willing to part with their shares, it wouldn't be too difficult for Eric to raise that sum in the short term.
"Eric, I'm not letting go of my stake in Firefly Group," Buffett said firmly, shaking his head with a smile.
He had thoroughly studied Firefly Group's current development status. Although the company was growing larger, it showed no signs of becoming unnecessarily bloated.
Now under Firefly Group were Firefly Films, New Line Cinema, Disney Studios, Buena Vista International, ABC, ESPN, Pixar, Disneyland, Digital Domain, and more. This long list of subsidiaries all represented prime assets that brought considerable profits to the parent company. Such a diversified yet cohesive large media group's shares were precisely what Buffett had always desired.
As long as Eric didn't undertake what Buffett deemed utterly irrational company development strategies, Buffett would never sell his shares in Firefly Group. After all, even without profit dividends from Firefly Group, the value of the company's stock was bound to appreciate steadily over the years.
Eric didn't expect Buffett to sell his shares, but still said, "Warren, you can also let others know. If they ever want to sell their shares in Firefly Group, I can offer the most generous buyback price. The annual growth rate for Firefly Group is quite low. I believe in the coming years they will definitely be keen on investing in NASDAQ tech stocks, and it will require money to do so."
Buffett tapped on the Clover Fund's investment materials, saying, "To me, that's just a pile of bubbles."
"I couldn't disagree more," Eric shook his head. "After the Southeast Asian financial crisis, countless hot money will flow into North America. Even if the trillion-dollar bubble bursts, the remnants still represent substantial wealth for us."
Buffett maintained a warm smile yet shook his head. "Eric, you can't sway me. My investment principle is never to delve into unfamiliar fields. If I'm interested in a company, I first research it thoroughly before acting.
Think about it; this principle applies to you as well. Your holding in Firefly Group and the myriad subsidiaries have developed to a considerable scale. While you have a good handle on these companies now, you'll inevitably start to feel overwhelmed. When that happens, your task is to shed the areas you're unfamiliar with and focus on optimizing what you can manage."
Eric nodded. "So, among the professional managers in North America, the one I admire most is Jack Welch."
"If you're interested, I can help introduce you. However, Jack has a particular obsession with diversification, which is not necessarily a good thing. GE's business has become quite bloated. I believe over the next decade, whether actively or passively, GE will gradually shrink its operations."
After finishing, Buffett eagerly analyzed, "In fact, at the beginning of his tenure, Jack started with streamlining operations. At that time, GE's business structure and employee system were overly bloated. Jack once reduced the management layers from eight to three, enabling the company to have a leaner operation, growing into a firm with over a hundred subsidiaries and nearly $300 billion in assets.
But no management philosophy is flawless. Although Jack ensured rapid development for GE over the past decade, the issues stemming from his management style will inevitably grow more severe over the coming years. For instance, Jack's obsession with diversification led to GE owning more than a hundred subsidiaries, including NBC, most of which are unnecessary. If the next management cannot resolve the problems he left behind, GE is bound to face decline."
Eric listened intently to Buffett's analysis, and once he finished, he smiled and asked, "What about you, Warren? You've been at the helm of Berkshire Hathaway for over thirty years!"
"It's different. That's a completely different ballgame. GE runs tangible industries, while I deal in equity investments. Over the years, I've never ceased restructuring the investment portfolio. Moreover, Berkshire Hathaway is valued at only over $39 billion, which is nowhere near being 'bloated'."
After speaking, Buffett glanced at Eric with a grin. "Truth be told, I'm quite envious of you, kid. In just ten years, you've surpassed what we older folks achieve in a lifetime. Occasionally, I ponder whether I should place massive bets akin to your stakes amidst the Gulf War, the Southeast Asian crisis, and the current wave of new technology. Unfortunately, I just can't bring myself to take risks as you do. By the way, you made quite a bit from Southeast Asia this past year, didn't you?"
"$1.1 billion," Eric admitted candidly. "I didn't expect it to be this much."
"From what I know, Soros's two funds likely gained around $6 billion this time, with his personal earnings amounting to $2 billion. However, your principal must have been far less than what Soros handled." Buffett said while shaking his head in disbelief.
*****
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