Two days ago in “Billionaire Bitch Fight: Ackman Slams Munger, Buffett For Profiting Off Fat Americans” we highlighted an absurd back-and-forth exchange between Bill Ackman and Buffett’s incorrigible right-hand man Charlie Munger who called Valeant’s business strategy “deeply immoral.”
That jab struck a nerve with Ackman who at certain times over the past 45 or so days has suffered dramatic paper losses in a matter of seconds on his Valeant stake as the stock plunged, and so, the Pershing Square chief fired back, accusing Munger and Buffett of essentially promoting childhood obesity and profiting from fat Americans’ addiction to “sugar water.”
As we noted on Wednesday, Ackman isn’t the first person to implicitly (or explicitly for that matter), call Buffett a hypocrite. Indeed, we’ve been keen to note just how convenient it is that the Obama administration has come out against the Keystone Pipeline on environment grounds while the administration’s friend Uncle Warren corners the railroad market. Of course the environment argument kind of goes out the window when Buffett-owned BNSF derailments seem to be a dime a dozen these days.
Perhaps the most poignant critique came earlier this year when Dan Loeb, speaking at the SkyBridge Alternatives Conference in May, said the following about Omaha’s favorite octogenarian:
“I love reading Warren Buffett’s letters and I love contrasting his words with his actions. He’s a very wise guy.”
“I love how he criticizes hedge funds, yet he had the first hedge fund. He criticizes activists, he was the first activist. He criticizes financial services companies, yet he loves to invest in them. He thinks that we should all pay taxes, yet he avoids them himself.”
Now, Ackman’s spat with Munger seems to have prompted WSJ to take a look at Buffett’s folksy hypocrisy. Here’s more:
Behind the latest barbs is a paradoxical view of Mr. Buffett on Wall Street, where many people admire his investing record and envy his immense wealth—Mr. Ackman is a self-confessed fan who made his comments at a New York symposium to commemorate Berkshire. Yet many of the same people also say Mr. Buffett hides behind the image of a folksy, benevolent businessman while he pursues the same profit-maximizing deals that are the target of some of his attacks.
There is even an adage in the investing community: “Do as Warren Buffett does, not as he says.”
He routinely speaks out against the fees charged by hedge funds and investment banks, the tactics of activist shareholders, the danger of derivatives and the heavy use of debt by private-equity firms. He has needled Wall Street in 17 of his last 25 letters.
Mr. Buffett also readily dispenses his views on politics, business, finance and other matters that have little to do with Berkshire directly.
Take taxes. Critics often accuse Mr. Buffett, a Democrat, of advocating higher taxes while pursuing tax-saving moves at Berkshire. Over the years he has taken public stances that inflamed Republicans, including urging Congress not to repeal estate and gift taxes and opposing tax cuts on dividends. In 2011, he wrote an op-ed article in the New York
Timesarguing for higher taxes on the wealthy and pointing out that his office staff paid a higher tax rate than he did.
Even as Mr. Buffett has supported tax increases, Berkshire has been a savvy navigator of tax rules. As of the end of 2014, the company had been able to defer $61.9 billion in cumulative corporate taxes by taking advantage of credits and other incentives—money that Berkshire invests and compounds until the taxes come due.
Another tax-related criticism of Mr. Buffett emerged last year when Berkshire participated in a deal to merge Burger King with a Canadian company. Critics said Mr. Buffett was supporting an “inversion” deal that could eventually reduce U.S. tax revenue. Burger King executives have said the deal was driven by global ambitions rather than by tax savings.
And then there’s the Heinz deal. Recall that back in August, we said “thanks uncle Warren” on the heels of reports which indicated it was time for Kraft employees to do their part to facilitate merger "synergies” in the wake of the Kraft-Heinz tie-up engineered earlier this year by Beuffett along with 3G.
In short, Kraft Heinz said it would lay off 700 workers at Kraft's corporate headquarters in north suburban Northfield, part of a cost-cutting plan that would slash the combined entity’s headcount in the U.S. and Canada by 2,500 jobs.
Earlier this month we got more of the same with CNBC reporting that Kraft Heinz will close seven plants and lay off 2,600 employees.
Back to WSJ:
Perhaps the best example of Mr. Buffett’s complex reasoning is his move in 2013 to team up Berkshire with Brazilian buyout firm 3G Capital for several joint acquisitions. 3G pushes for drastic change at the companies it buys, stripping costs, cutting jobs and installing new management. The partnership riled many shareholders of Berkshire, where subsidiaries operate with little interference and layoffs and management turnover are rare.
As one Florida hedge fund manager told The Journal: “He has always been about: ‘How can I compound money at the fastest after-tax rate in a sustainable way?’”
And to a certain extent that's Buffett's right as a successful capitalist, but when you publicly deride others for doing in some instances not only the very same things you do, but the very same things you do better than anyone else, well that's a whole different story.
More importantly, when you are able to move deftly between the public and private sectors while influencing policymakers' decisions along the way, it's important you don't appear to be profiting from those policy decisions - especially in a way that seems to undercut the reasoning the government employed when explaining those decisions to the public.
And that looks like exaclty what's going on with the Keystone Pipeline and Buffett's railroads.
There have been three BNSF oil train derailments in the past 8 months, but at least the environment is safe because Obama finally pulled the plug on the "dangerous" Keystone XL pipeline...