Buffett v. Schulich: The biggest bet out there
From: Seymour Schulich “seymour@richboy.ca”
To: Warren Buffett “warren@cheapskate.com”
Subject: The road to riches is paved with oil (and wheat, and...)
Warren,
Seymour Schulich from Toronto here. I was talking to some kids at one of the universities here, and telling them that in 46 years of investing, I've never seen anything like this market. Never. Oil, rice, potash, wheat, gold, sugar – it's a commodity investor's dream. Manna for guys like me!
So I got to thinking, I wonder what Buffett says about all this? You've never been a fan of these commodity things. Shoot, you're out there buying big chunks of Wrigley and Kraft Foods. I don't get it. These guys are going to get killed by inflation. Didn't sugar prices go up something like 50 per cent in the space of a few months? By how much do you think Kraft can raise the price of a box of Oreos? Commodities rule, fella.
Anyway, getting to my point. You like giving away your money. So do I. I'm proposing a wager. We each set aside $10-million. In two years, the guy with the best return picks the charity that gets the pile.
What do you say? A little fun for a good cause?
Sincerely,
Seymour Schulich, CFA
From: Warren Buffett “warren@cheapskate.com”
To: Seymour Schulich “seymour@richboy.ca”
Subject: You're on
Dear Seymour,
Thanks for your note. I like visiting Toronto. It reminds me of Omaha, only quieter.
Your proposition is interesting and I'll take the bet. I had my research team (by which I mean, Charlie) dig up some details. A business magazine says you're worth $1.3-billion. Not bad for a guy who made his money in oil and mining.
Those commodity producers are minting money now. But most of them have no sustainable advantage over the competition. Wheat is wheat; oil is oil. There's no way to differentiate it. There's a supply and demand issue right now, but this too shall pass. I see gold is almost back down to where it peaked in 1980. When you adjust for inflation, oil is still not much higher than it was in the late 1970s. Not much of a real return there.
Hey, you know my shtick. I like stable businesses, brand names, rising profits and high returns on capital. Coca-Cola's still making 30 cents for every dollar in shareholders' equity. Wrigley's making 25 cents on the dollar, and doing it with almost no debt. What does it matter if sugar is a bit more expensive? They're great businesses.
Gotta run. It's annual meeting day. The adoring masses await.
Best regards,
Warren
p.s. Is that $10-million in Canadian or U.S. currency?
From: Seymour Schulich
To: Warren Buffett
Subject: RE: You're on
Dear Warren,
Glad to hear you're taking the bet. Let's make it in Canadian dollars. I don't want my charities getting U.S. pesos!
Look, I hate to question the wisdom of the world's richest man. But as I often remind people, my family's motto is, “Often wrong, but never in doubt.” And there's no doubt in my mind that it's different this time. By the way, if you're keeping score, ExxonMobil's return on equity was higher last year than Coke's or Wrigley's.
I've seen it with my own eyes. The China story is real and could last for the next 20 years. You wouldn't be wrong to say that mining was a crummy business for a long time, and oil has had its bad spells, too. But that was when the U.S. was the world's only major customer for stuff you dig out of the ground. It ain't so any more.
You always like to talk about See's Candies and what a great find it was for you. But why? Because you could raise prices all the time without reinventing the damn thing. Chocolate's chocolate. But it's the guys producing the cocoa who've got the leverage now.
Come and see me the next time you're in Toronto. We've got to get you weaned off bridge and into poker. Now that's a man's game.
SS
From: Warren Buffett
To: Seymour Schulich
Subject: Never invite 24,000 people to your annual meeting
Honestly, it takes more Cherry Cokes to get me through this event every year.
I'm not averse to commodity companies when they're bargain-priced. We made a very large profit on PetroChina. I just don't think you'll find many like that any more.
The kind of businesses we like look as cheap as they've been in a long time. We bought almost 3 per cent of Wells Fargo last year. We tripled our investment in Johnson & Johnson. We're certain their profits will be a lot higher 10 years from now. Can you say that about your gold miners?
Best,
Warren
From: Seymour Schulich
To: Warren Buffett
Subject: Rocks beat Wrigley
Warren,
Glad to see you're sticking to your style. The university students of Canada thank you in advance for your donation.
You'd better watch out. When gold gets to $10,000 an ounce and oil hits $700 a barrel, I just might pass you on the Forbes billionaire's list! LOL.
Best regards,
Seymour
From: Warren Buffett
To: Seymour Schulich
Subject: BUD beats barley
Seymour,
I'll let Bill and Melinda know to expect your cheque in 2010. Regarding the Forbes list – to pass me, you'll have to outlive me. And I intend to challenge Methuselah's record.
Sincerely,
Warren Buffett
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