Morgan Stanley's David M. Darst on Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street
In 14 Chapters, 265 pages, and 443 footnotes drawing upon 119 sources, structured finance and derivatives consultant and expert witness Janet M. Tavakoli writes about her “meeting with Warren Buffett on the eve of the greatest market meltdown in history” and how meeting him subtly changed the way she looks at global financial markets.
But Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street is much more than a personal investing bildungsroman. The book is so loaded with lessons, warnings, admonishments, and recommendations that readers will find themselves copiously underlining the text and filling the margins with stars, checkmarks, and exclamation points. Dear Mr. Buffett is wide ranging and hard hitting, written with humility, great specificity, honesty, humanity, and historical awareness.
Captious (or offended) readers may criticize the book as: too harsh in parts; overly broad-brush in its treatment of micro and macro events; and possibly bordering on solipsism when Tavakoli frequently cites her own articles, letters, e-mail exchanges, telephone conversations, and television appearances. Serious financial debacles in the post-Millennium years have left plenty of blame to be apportioned among firms, regulators, the financial system, and let’s face it, human nature, and though polite and deferential, Tavakoli (called by Business Week “the Cassandra of credit derivatives”) is not reticent. At times, her tone can be Biblically prophetic.
That said, Dear Mr. Buffett is worth its weight in gold for two main reasons. First, the timeless investment lessons laced throughout the book. To cite a few: Warren does not rely on a price because that is what you pay. He relies on value because that is what you get (page 23). The five most dangerous words in business may be “Everybody else is doing it” (page 38). Janet Tavakoli’s Theory of Everything in Finance: The value of any financial transaction is based on the timing of cash flows, the frequency of cash flows, the magnitude of cash flows, and the probability of receipt of those cash flows (page 69). One of Warren Buffet’s core principles: Don’t lend money to people who can’t pay you back. If you do not understand something, do not invest (page 105). The fraud triangle: need, opportunity, and the ability to rationalize one’s behavior (page 199).
Second, the book contains lucid, lapidary descriptions of options backdating (Chapter 3); mortgages (Chapter 5); complex structured products, securitizations, and off-balance sheet vehicles (Chapter 7); and the perils of leverage and the developments leading to the difficulties at Bear Stearns, Lehman Brothers, and other financial enterprises (Chapters 8 and 9).
Parts of the book read like replaying a YouTube video of a hurricane. Whether or not you agree with Tavakoli in all cases on the details and/or her approach, what comes through in every sentence is her conviction and courage in recounting what happened and her creativity and concretization in proposing safeguards and solutions. In the Preface, she says she is “still learning,” and the financial realm stands the richer from her energy, discernment, persistence, erudition, curiosity, insight, and human empathy.
Read this book as soon as you can. As Warren Edward Buffett has said, “Janet Tavakoli should have been listened to much more carefully in the past… and will be in the future.”
David M. Darst is a Managing Director at Morgan Stanley. He serves as Chief Investment Strategist of the firm's Global Wealth Management Group and is the Chairman of the Asset Allocation Committee. Darst is also the founding president of the Morgan Stanley Investment Group. Prior to joining Morgan Stanley in 1996, he was with Goldman Sachs for over twenty years, where he served as a senior executive in the Equities Division. Darst is often quoted in the New York Times, Wall Street Journal, and Financial Times, among others. He is also a frequent guest on CNBC, Bloomberg, and FOX News. He earned his MBA from Harvard Business School and received a BA in economics from Yale University. Darst is a CFA charterholder.
Altogether this book is an excellent read, loaded with information about the goings-on in the financial sector in the US till as recently as September 2008. The is informal, almost like a conversation in a lounge bar, racy, laced with wit and when it comments on leading actors in the drama, dipped in vitriol. Tavakoli is a name we will be hearing about frequently in the near future. (Business Standard
"Dear Buffett is must reading . . . in a way that only Tavakoli could provide. . . Tavakoli knows her stuff. She knows where the bodies are buried in the complex formulas. . . And, almost as a bonus, we get Buffett's views and insights into his derivatives trading. There's nothing more you could ask for in a financial book in this day and age of financial derivatives meltdown." (Economic Policy Journal)
"...full of anecdotes, details and character sketches that add depth...she knows her stuff, has strong opinions and turns a colourful quote." (Financial Times, February 21st 2009)
"A clear and pacy run through the multitude of sins and sinners in the modern financial world. . . full of anecdotes, details and character sketches that add depth and colour to even the best known episodes of the past two years. [Tavakoli] also covers events only a few years before the current crisis that should have been big warning signs. The correspondence between Buffett and Tavakoli over the past three years reinforced her existing views on the dangers of complex finance. And with Buffett's blessing, this book will find a ready-made fan base with little marketing effort. . . Tavakoli makes for an attractive pundit - she knows her stuff, has strong opinions and turns a colourful quote. . . There is a healthy dose of "I told you so" about this volume - but, to be fair, Tavakoli is one of the few who did." (Financial Times)
"[Tavakoli has] been railing against emperors wearing no clothes in the credit derivatives markets forever. If only people had listened." (AndrewTobias.com)
"Why is this not an ordinary Buffett book? Because it concerns how an expert on derivatives came to know Mr. Buffett, and how the current crises were seen in advance by both of them. This book’s greatest strength comes from its ability to explain the messes we are currently in. No solutions, mind you, and Mr. Buffett ain’t handing out any of those either, but understanding how we got to where we are is of value, and Janet Tavakoli is nothing if not a good writer on those points.
There is a second theme — how a derivatives expert came to appreciate value investing. After all, when short term investing is focused on a variety of arbitrage situations, why not think long, and look for long term capital appreciation?
I heartily recommend this book. One reading this will understand our current crisis very well, and will gain in his understanding of how our markets work. That said, the virtues of the book do not come from Mr. Buffett, but from one who intelligently admires his views on derivatives and other matters." (The Aleph Blog)
‘Dear Mr Buffett’ is, like its author, strongly, often harshly, and, more than rarely, tartly, opinionated. The attitude is, however, well-supported by the facts; should anyone ever display the slightest interest in criminalizing the criminals who led us down this path, a prosecutor could do worse than ordering up copies for the grand jury.
One thing the world is not going to run out any time soon is books on subprime credit-turned-global financial meltdown. But it’s doubtful that many, or any, will so closely match the ripping yarn of financial upset with concepts that any — and perhaps every — investor can apply to their own financial security. This book was already at the printer when the Madoff Maelstrom broke, but it’s highly doubtful that anybody who absorbs the message of ‘Dear Mr Buffett’ will ever need confront that kind of mayhem. (Seeking Alpha, Greg Newton)
Janet Tavakoli’s Dear Mr. Buffett is an unusual amalgam of a simple, personal story and a complex, public one…The promise of this tantalizing morsel will draw buyers in. But readers will find much more than another book on Warren Buffett…Tavakoli’s book chronicles the words and deeds of people who dealt in derivatives without knowing – and often without caring – what that relationship was. Some will call her book a morality tale. I call it a rationality tale. (Seeking Alpha, Geoff Gannon)
Ms. Tavakoli uses her letters and relationship with Warren Buffett as an homage to Buffett's ability to distill the basic essence of complex matters into simple facts of money and value…For Dear Mr. Buffett, she has opted for a simple approach to tell the tale of actors gone bad and trust abused at many levels. This book is an accessible popularization of the issues, and as such no heavy securitization math etc. to deal with. I agree with this approach as the story needs to get out to as many as possible. (Seeking Alpha, Nick Gogerty)
". . . isn't yet another book about Buffett's career. Rather it's Tavakoli's withering critique of just about anyone who had anything to do with inflating the housing bubble. . . Tavakoli contrasts that behavior with the way Buffett runs Berkshire Hathaway. . . an excellent summary of the factors that led to the historic boom and bust. . . easy to read at 224 pages. . . overall a good book that offers excellent insight into the recent fiasco." (The Free Lance-Star)
"If you want a primer into just how out of control the markets were...then this is an ideal starting point." (TheBookBag.co.uk, May 29th 2009)
"An intelligent analyst whose command of the arcane world of securitization mixed with a brutally honest analytical framework makes it a pleasure to hear and read her work." (Asia Times Online)
"[This] book is so good, I’m on my second reading of it. That’s how good it is." (Max Keiser, "On the Edge with Max Keiser)
"Zero Hedge joins in endorsing Mr. Keiser's glowing recommendation of . . . " "Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street " a must read for anyone who wishes to get a deep understanding of the real severity of America's economic debacle. . . “(Zero Hedge)