Celebrity Investors: Kerkorian vs. Buffett

Kirk Kerkorian made major headlines yesterday and today by announcing the reduction of his stake in Ford Motor Company.

According to most stories, the seasoned investor has lost about 70% of the value of his Ford position, or roughly $690 million on a $1B investment earlier this year.

Kerkorian's Tracinda Corporation, his investment vehicle, is privately held, so we can't really know his, or its performance over the decades during which he has been a prominent investor. He's been at it for quite some time, though. I vividly recall a problem in a graduate accounting course which featured an article detailing Kerkorian's transformation of MGM into his personal money machine. He ended up controlling the company's voting shares in such a way that he could use it as an ATM, declaring a dividend payable largely to himself, at will.

The other celebrity investor who comes to mind, of course, is Warren Buffett. Buffett works through the publicly-held Berkshire Hathaway, and maintains a high profile. He has made himself the darling of the CNBC set, publicly jumping on the Obama bandwagon, and no doubt enjoyed being mentioned by both candidates in a debate earlier this fall.

Nearby is a 5-year price chart for Berkshire and the S&P500 Index. It's easy to see that, despite all Buffett's publicity, you'd have been better off, on a risk-adjusted basis, owning the S&P for most of the past five years. Since 2003 market the onset of the most recent period of an up market for equities, this chart tells you that Buffett, no matter what he might have once done, is no longer a serious outperformer in healthy equity markets.

The accompanying 2-year view of the same series gives a closer look at the split, whereupon Berkshire parted company with the index and began to outperform it.

When the very beginning of the current financial crisis began to be noticeable, in August of last year, Berkshire rose, while the S&P flattened, then, of course, began to significantly slide in the spring of this year.

Looking at just the past six months, in this chart, we see that, even recently, Berkshire tracked the index almost perfectly until the carnage in September. In fact, in the brief period of a 'false positive' in May, Berkshire actually underperformed the index.

My point is that, on evidence of the past five years, Buffett's Berkshire is hardly the paragon of investing prowess that so many believe when referring to him as the "Oracle of Omaha."

Even in recent months, his bets have been focused on lending money, at very high interest rates, to better-quality US firms, e.g., Goldman Sachs and GE. It's a bit galling to hear Buffett mentioned in Congressional hearings by our elected representatives as if he's some sort of investment deity, when, in fact, his record is actually so inconsistent, or, at best, usually mediocre.

Because Tracinda leaves no long term footprints, it's impossible to show a comparative chart of Buffett's and Kerkorian's performance. But I can't help suspecting that Kerkorian has a better, more consistent track record over time.

Call it my innate scepticism, but I'm leery of Buffett's obvious use of his own public image as the best investor on the planet to draw attention away from his firm's actual performance, versus the market, over time.

Ironically, I'm more impressed with the entire Kerkorian saga of investing in the auto sector. I wrote about it, and Buffett's Mars-Wrigley investment, in this post, back in May of this year.

While Kerkorian didn't realize his objectives with his Ford stake, you cannot criticize him for a lack of appetite for risk. A Wall Street Journal article attributed some of Kerkorian's motivation for selling his Ford stake to the recent departures of the CFO and a board member, raising the specter of increased control by the Ford family.

Whatever the reasons, I sense, in Kerkorian's shunning of the public spotlight, a more hard-nosed, focused approach to finding opportunities for investing. I wish we all knew more about his investment performance over the years.

It would be a fascinating comparison.

Kerkorian & Buffett Are Back On The Investment Trail

The beginning of this week saw evidence of a return to big capital moves and investments capable of triggering later, or funding current megers.

First, Kirk Kerkorian has bought up just under 5% of Ford, with a tender, at a premium, for about as much additional equity in the firm.

Kerkorian, as you can read from my prior labelled posts, most recently this one, involving GM, has been around the auto maker investment track twice already. He triggered Chrysler's sale to Daimler, and fought unsuccessfully, through his emissary, Jerry York, to help GM retrench and deliver more shareholder value in a more timely manner.

My guess is that Kerkorian likes what he sees in Alan Mullaly's efforts at Ford, but correctly realizes that, on its own, Ford will never be a long term provider of consistently superior returns for shareholders. Thus, Kerkorian is probably positioning for either an exit at a 'local' top, before the stock price plunges again, or to participate in his J.P. Morgan-style sector-based investment banking activity by marrying Ford with Carlos Ghosn's Nissan.

Either way, I wouldn't bet against Kerkorian reaching his own investing objectives with Ford. And, for what it's worth, we learned this week that York has already met with Mulally to assure him of Kerkorian's support and satisfaction with his efforts to date at the automaker.

Then we have Warren Buffett joining Mars to buy Wrigley. Due to Wrigley's relative scale deficiency, and the temporary stock price depression due to margin pressures caused by commodity price inflation, Mars moved quickly to secure this acquisition. By using Buffett, it avoided both a bidding war and the need for a protracted campaign to convince lenders to fund the acquisition.

Buffett is usually fairly astute at these sorts of deals, and probably, as a price for his participation, got nice terms, too.

So it would seem that large, sophisticated private investors are demonstrating that it's safe to go back to investing in companies and betting on longer term expansion and business health.

Hopefully, the more publicly-held segments of the financial services sector will be following soon, in a considered and intelligent fashion.

GM's New Shareholder: Goldman Sachs

Yesterday's Wall Street Journal noted that Goldman Sachs now holds a 5.2% stake in GM.

Are they betting on a takeover, or girding for the kind of shareholder activist campaign that Relational used to get a seat on Home Depot's board? Or of the type that Kirk Kerkorian failed with last year? Or, is Goldman simply being opportunistic, hoping for a quick "pop" in the stock price, before unloading their shares?

I haven't seen much discussion about this, for example, on CNBC. Isn't this surprising? When a noted equity house, asset manager, private equity funder and player, and M&A powerhouse takes such a large interest in an ailing company?

What's the likely implication for GM shareholders? I'd guess very good, since GS is comprised of a bunch of smart, tough financial sharks. I suppose the big question is whether Rick Wagoner is or would be more fearful of Goldman's no-nonsense bankers than he was (not) of Kirk Kerkorian.