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Doug Kass Takes Warren Buffett Challenge to Ask Bearish Questions at Berkshire Hathaway Meeting

Monday, 04 March 2013 12:11 PM

Douglas Kass, the investment manager betting against Berkshire Hathaway Inc., accepted billionaire Warren Buffett’s challenge of asking bearish questions about the company at its annual meeting in May.

Kass, the founder of Seabreeze Partners Management Inc., began to bet on a decline in Berkshire stock in the last five days, he said in a phone interview. He will be surrounded at the meeting by tens of thousands of shareholders, many of whom travel from around the world to listen to the billionaire Berkshire chairman and Vice Chairman Charles Munger.

“As a quasi-dedicated short seller, or someone who’s biased to the short side, I’m well accustomed to the Bronx cheers,” Kass said, referring to the heckling sound named after the New York borough.

Buffett, 82, said in a March 1 letter that he was seeking an investment professional who’s bearish on Berkshire, to fill a seat on a panel of questioners the May 4 gathering in Omaha, Nebraska, where the company is based. Kass said he learned about his selection watching an interview with Buffett on CNBC and that he was “honored” to be picked.

“Doug’s a gray-beard, in a good way,” Jeff Matthews, a Berkshire investor and author of books about Buffett, wrote in an e-mail. “He’s thoughtful as hell and also knows a good company, and a bull market for that matter, when he sees it. So Buffett will get some good questions from him, and shareholders will be well-served to hear them asked, and answered.”

Kass wrote in early 2008 that Berkshire shares may fall, in part because of the possibility of declines in Buffett’s equity portfolio and the difficulty of replacing the billionaire. In the interview Monday, Kass declined to say the size of his current bet against Berkshire or say how many assets are under management at Palm Beach, Florida-based Seabreeze.

Empty Glass

“I try to develop a variant view in companies that are predominantly loved by the investment community,” Kass said. “Given the fact that I’m short-biased, and probably dropped on my head when I was an infant by my mother, you know I tend to look at the glass as substantially half-empty, rather than being half-full.”

His article about why to bet on Berkshire’s decline appeared in TheStreet.com on March 10, 2008, when the company’s shares closed at $131,400. They dropped below $71,000 in March 2009 amid a global economic slump.

Berkshire’s shares have rallied since, as Buffett acquired railroad Burlington Northern Santa Fe, started buying back stock and made a $5 billion investment in Bank of America Corp., getting preferred shares and warrants. Berkshire has gained 29 percent in the last year, more than double the Standard & Poor’s 500 Index, and closed at a record $152,750 on March 1. Buffett’s firm slipped 1 percent to $151,299 at 11:40 a.m. in New York.

Goldman Bet

Goldman Sachs Group Inc. has rallied about 50 percent since Aug. 1 when Kass said he was betting against the company because he saw the brokerage industry’s business model as “broken.”

Kass has made bullish calls as well. He recommended buying stocks at the end of 2011, before the S&P 500 rallied 13 percent the following year. He made a similar forecast in March 2009. The benchmark gained more than 60 percent the rest of that year.

Adding a bear to the meeting is the latest twist in the format of an event where the conversation can drift from Berkshire. Buffett, who has entertained shareholders in past gatherings with musings on baseball and Paris Hilton, has sought to steer talk in recent years back toward his company and said in his letter that a short-seller would “spice things up.”

Loomis, Gallant

In 2009, he invited three journalists — longtime friend and Fortune magazine writer Carol Loomis, CNBC’s Becky Quick and the New York Times’s Andrew Ross Sorkin — to alternate asking questions with the audience.

Buffett added a panel of three insurance analysts last year to pose more queries about Berkshire businesses such as Geico and General Re. That was too narrow a focus for some shareholders, he wrote in the letter. This year, Kass will join a panel that will include Cliff Gallant, a Nomura Holdings Inc.’s insurance analyst, and Ruane Cunniff & Goldfarb Inc.’s Jonathan Brandt.

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Douglas Kass, the investment manager betting against Berkshire Hathaway Inc., accepted billionaire Warren Buffett’s challenge of asking bearish questions about the company at its annual meeting in May.
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Monday, 04 March 2013 12:11 PM
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