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The Value Of "Lunch With Warren Buffett" Plunges 22%

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The winning bidder in legendary investor Warren Buffett’s annual charity auction has pledged $2.68 million for the privilege of eating lunch with the billionaire investor, according to Bloomberg.

 

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While the sum is far greater than the $25,000 paid in 2000 - the first year Buffett held the fundraiser - it’s about $800,000 shy of the record sum of $3,456,789 paid in 2012 and 2016.

 

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The proceeds benefit Glide, a San Francisco-based charity that serves meals to the homeless and provides treatment for drug addiction.

 

The winner of this year’s auction, who, like last year’s winner, opted to remain anonymous, can bring up to seven friends to dine with Buffett during a lunch at Manhattan’s Smith & Wollensky steakhouse. At least one former winner – Ted Weschler - later joined Buffett’s Berkshire Hathaway Inc. to help oversee investments. Last year’s winner chose to remain anonymous, Bloomberg reported.

 

According to eBay, the five-day auction attracted 41 offers. The top bid lingered below $2.4 million as interest in the auction seemed to dissipate on Friday, until the winner placed his bid during the closing seconds.

 

Given the market’s performance this year, it’s a little surprising that the winning bid failed to top the prior year’s offer - the first time that’s happened in five years. Perhaps hedge fund luminaries like David Einhorn – who paid just over a quarter of a million dollars to dine with Buffett in 2003 – have been stung by Buffett’s incessant bashing of their industry.

 

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Or maybe portfolio managers are exercising some restraint as the centrally-planned economy cultivated by the Federal Reserve continues to make like difficult for long-short equity funds.

 

As Bloomberg notes, Buffett - who is Berkshire’s chairman, chief executive officer and biggest shareholder - used stock picks and acquisitions to build Berkshire from a failing textiles maker into a $419 billion company with holdings in energy, insurance, retail and manufacturing.

 

Some of Buffett’s long-time holdings have underperformed lately, causing some to second-guess the 86-year-old Buffett. Shrinking revenues at IBM Corp., Buffett’s sixth-largest holding, have turned the stock into a dog of the Dow Jones Industrial Average. And shares of Wells Fargo & Co., his second-largest holding, have yet to recover from a cross-selling scandal that led to the ouster of former CEO John Stumpf and the clawback of more than $70 million in compensation from him and another former executive.

 

But Buffett & Co. have made at least one savvy investing decision this year. Berkshire’s latest 13-F filing revealed that the company has increased its stake in Apple Inc. to just shy of 130 million shares – worth more than $19 billion as of Friday’s close. Apple, Alphabet Inc., Amazon, Facebook and Microsoft – what Goldman Sachs has termed the “FAAMG” stocks – are responsible for nearly 40% of the S&P 500’s gains year-to-date, and more than half of the Nasdaq’s.

 

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The rest of Berkshire’s holdings are available in the table below:

 

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As a reminder, Dark-Bid.com's Daniel Drew notes that Warren Buffett's annual letter this year praised Jack Bogle as his "hero" for promoting index investing. The irony is that investors would have been better off buying Berkshire shares. Over the last 10 years, Berkshire stock is up 139% while the S&P 500 is up 71%. The real question is why Buffett just doesn't tout his own stock rather than promote index investing. He tries to explain himself:

 

"Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price - it's no fun having owners who are disappointed with their purchases - nor one too low."

 

Buffett is doing something every skilled salesman does: managing expectations. Buffett's own performance is compared against the S&P 500, and what better way to win that game than by putting a floor under the Berkshire price with the promise of share buybacks and then putting a ceiling on the stock by promoting index investing? The real secret is Buffett is talking his book by not talking it: Rather than tell investors to buy Berkshire at any price, he tells people to invest passively through an index, which leads to the very market inefficiencies that he profits from.

 

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