Warren Buffett wrote to Leon Cooperman about stock buybacks, taxing the rich, and Henry Singleton.
When Cooperman was considering a presidential run, Buffett joked that he could deliver “Nebraska” for him.
Cooperman shared a trio of messages he received from Buffett in his recently published memoir.
Warren Buffett wrote to Leon Cooperman on topics ranging from Henry Singleton and Teledyne to stock buybacks, income taxes and Cooperman’s potential presidential bid.
Cooperman, the former CEO of Goldman Sachs’ asset management division, shared three messages from Buffett in his recently published memoir, “From the Bronx to Wall Street: My Fifty Years in Finance and Philanthropy.”
Here are the three messages and the context surrounding them:
1. Dear Editor
Cooperman, who converted his hedge fund Omega Advisors into a family office in 2018, wrote an open letter to the editor of Business Week in 1982. He was annoyed by the magazine’s critical profile of Henry Singleton, Teledyne’s co-founder and CEO.
In his letter, the billionaire investor praised Singleton’s ability to grow his conglomerate through acquisitions and boost the performance of Teledyne’s subsidiaries. Cooperman also praised the industrialist for buying back shares at attractive prices, investing excess cash from Teledyne’s insurance business in stocks and building the company’s cash reserves.
Buffett wrote him a note after reading the letter, which Cooperman still has framed in his office:
I always enjoy both the quality of your writing and the quality of your thinking. Your letter to Business Week about Teledyne was 100% in order.
2. Buybacks, good and bad
Cooperman praised Singleton again at a value investing event in 2007. He called the Teledyne chief an example of an executive who buys back the right way, as he only buys back shares at a discount to their intrinsic value.
After his speech, Buffett wrote to Cooperman to express his agreement:
Henry was a manager that all investors, CEOs, CEOs would want to be, and that MBA students should study. Ultimately, he was 100% rational and there are few CEOs I can make that statement about. The stock buyback situation fascinates me. That’s because the answer is so simple. You do it when you buy dollar bills at a clear discount and significant discount, and only then.
As a general observation, I would say that most companies that bought back stock thirty years ago did so for the right reasons, and most companies that do so now are doing it wrong when they do so. Time and time again I see managers trying to be “fashionable” or, perhaps unconsciously, hoping to support their stocks.
Loews is a good example of a company that has always bought back stock for the right reasons. I could give examples of the opposite, but I try to follow the saying “praise by name, criticism by category.”
3. Free Nebraska and tax the rich
Cooperman briefly considered a presidential run in 2011. He laid out a nine-point platform that included withdrawing U.S. troops from Iraq and Afghanistan, rebuilding U.S. infrastructure, deregulating the domestic energy industry and curbing government expenditure.
The veteran investor also targeted people earning more than $500,000 a year, proposing they would have to pay a 10% income surcharge for three years. Cooperman sent his plan to Buffett and asked the Berkshire chief directly what he thought the maximum tax rate should be for the highest-earning people in the US.
In his response, Buffett expressed support for both Cooperman 2012 and a minimum tax:
If you run for president, I can liberate Nebraska. Just let me know when to switch gears.
There are two possible approaches to increasing rates for those taxable $1 million or more, with a second step up to $10 million. One would be to increase the rate by five points to $1 million and by 10 points to $10 million.
Another approach would certainly be to adopt a minimum tax (which includes both income tax and payroll tax paid by or on behalf of the taxpayer) of, say, 30% at $1 million and, say, 35% at $10 million. This last tax would hit me much harder and I’m leaning toward it. Just changing the marginal rate would hardly affect me.
Let me know your thoughts. Whatever they are, you still have my vote.
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