Customer Reviews

Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street

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This is the book that Wall Street and Washington do not want you to read. Many books will be written about the credit crisis but it is hard to believe that any will match this real time fast-paced expose. Tavakoli's 2008 book, Structured Finance, details the credit meltdown for finance professionals, and in this book she explains it in a way that everyone can understand. I agree with George Goodman aka Adam Smith who writes on the book jacket that that contrasting the madness with Warren Buffett's good sense is appropriate. He wrote Money Gameand identified Buffett as a great investor in the 1960's, before most people had heard of Warren Buffett. He also wrote a more recent book called Supermoney (Wiley Investment Classics). Contrasting the recent financial madness with Buffett's sensible warnings makes this book compelling, because it proves that the phrase "every one was doing it" is false.

Tavakoli wrote the first book ever published about credit derivatives in 1999 and exposed hidden risks that worked in favor of investment banks but against naïve investors. That led to Warren Buffett inviting her to Omaha, and this book begins with that lunch. Tavakoli then uses his value investing philosophy and contrasts that with the subsequent market madness.

There are a lot of hindsight bias plagued pundits who now claim to have spoken up, but if they gave any warning at all it was of the variety of "the sky is falling," with no specific understanding of what was happening. Some claim the events were unpredictable, but Tavakoli uses logic and facts, plus documented evidence that she said so back in the day, to explain that it would and did happen. She spoke out specifically and publicly about CDOs and wrote an early book, and the only book, to discuss the high degree of fraud and continued potential for fraud. In April 2005, she warned the IMF about credit derivatives and overrated CDOs and posted the clip on her web site. In January 2007, she wrote an article to a risk magazine saying risk managers at investment banks, and she mentioned some by name, should get out and sell the overrated securities. In February 2007 she wrote a letter to the SEC saying AAA ratings for many structured products were grossly misleading and the rating agencies should have their special status revoked for structured products. She issued a direct challenge to AIG's June 2007 accounting statements. It's all in the book plus much more. She also knew a lot of the people whose names made the news and interacted with them through the meltdown. One manager of the Bear Stearns hedge funds even tried to get her to change her public stance against their proposed initial public offering, which failed because she spoke out. Those facts make this book on the global meltdown unique, the only explanation from a pro who spoke out in a specific way in real time.

Janet Tavakoli, a well-known expert in the world of credit derivatives and structured products (yes, those toxic assets) has written a remarkably entertaining and insightful book in which she combines Mr. Buffett's wisdom and advice with her own views about the credit crisis. Tavakoli's previous books, all about highly technical topics, allowed her to show only one set of skills, albeit an important one: her ability to explain technical issues in an accessible manner. In Mr. Buffett, however, a book for the general public that contains no formulas or equations, she demonstrates that she can write not only with clarity but with wit. Her prose is agile and precise, and her words punch her victims always fatally, and not once, but just in case, many times. Hints of this refreshing style were somehow present, although not totally in the open, in her previous book (Structured Finance & Collateralized Debt Obligations). Despite the subject matter she managed to include comments about triboluminescense, sexual positions, and the Nogorno-Karabakh dispute while making reference to characters as diverse as Michael Moore, Richard Feynman, Shakespeare and Paul Marcinkus.

Mr. Buffett started with an invitation by The Sage of Omaha to Tavakoli in June 2005 ("Be sure to stop by if you are ever in Omaha and want to talk credit derivatives") after she had mailed him a copy of her latest derivatives book. Knowing that she would never have any reason to be near Omaha, Tavakoli volunteered a few days to visit. Shortly thereafter, she flew from Chicago (where she lives) to have lunch with Mr. Buffett in a place "with no décor but good food." That started a dialogue between the two of them (through subsequent phone calls, e-mails, and letters) that seems to be still going on.

In a sense, Tavakoli's book is more about the current crisis rather than Mr. Buffett, although there is enough about him to satisfy the Buffett-curious reader. He comes across as a deceptively affable man who advises her not to neglect her love life, enjoys and values gossiping, reads financial reports the way a teenager reads Playboy, and believes there is no difference between value and growth stocks. This came as personal relief because I always failed to see the difference between them no matter how hard all the mutual funds prospects I have seen try to make that point. On a more serious note, Mr. Buffett seems not to take the Efficient Market Theory (or dogma?) too seriously. Not a surprise if you think that his track record as investor is a living proof of the fallacy of the theory. More important, Buffett reminds us of the danger of leverage: anyone can show great investment returns with leverage (inflated revenues, he calls them). It is when things go the other way, and leverage magnifies the mistakes, that you can really see who has been swimming naked.

But the backbone of the book (and its most interesting aspect) is the critique and analysis of the current financial crisis that Tavakoli intertwines cleverly within her own dialogue with Mr. Buffett. She makes a convincing case that at the root of the present crisis there was a bad combination of dishonest executives and bankers under the surveillance of incompetent, and probably equally dishonest, regulators.

For example, the chapter about the backdating of stock options scandal, although not strictly related to the credit crisis, makes you wonder about the character of the people running corporate America: in the 2006-2007 timeframe more than 120 U.S. companies were under investigation for accounting irregularities; 85 ended up amending their earning statements. She is very critical of the role played by the Office of the Comptroller of the Currency (OCC), which invoked an obscure 1862 provision to undermine the states' ability to police predatory lending. This decision, she believes, had a very negative effect on mortgage origination standards and their subsequent re-packaging by investment bankers. Additionally, she castigates the Securities and Exchange Commission (SEC) for failing to oversee the investment banks. And when it comes to the rating agencies, which blessed some of these securitizations with AAA ("very safe") ratings, she employs the term "financial astrology". Enough said! Ironically, Mr. Buffett, who through its investment company (Berkshire Hathaway) owns almost 20% of Moody's stock, has admitted to her that this is one investment he is not proud of.

Tavakoli also paints a disturbing picture when she describes the collapse of two Bear Stearns investment funds (she received a "thinly veiled threat" by the fund manager after she was quoted in the press saying something he did not like); when she explains how the well-connected Carlyle group got help from the Fed while a less plugged-in fund, Peloton, was let go; and when she shows that her initial assessment of AIG, Merrill, and Citigroup losses (all made in late 2007 and early 2008 and in contradiction with the information released by those companies at the time) was ultimately right on the money. The list of financial and ethical shenanigans is long and compelling, full of juicy anecdotes, and supported by solid data and well-articulated reasoning. Although is fun reading about these issues it is quite depressing to think about them: you get the sense that the story is more in tune with the doings of a corrupt military dictatorship in a third world country rather than the oldest democracy in the world.

Much has been said about the acronyms used to describe the financial instruments involved in this crisis: CDOs, SIVs, CPDOs, ABS, MBS, CDS, ABCP, etc. Ironically, the list of government entities which, in her view, have something to apologize for is almost as long: SEC, FED, OCC, FDIC, FHFA, OTC, OFHEO, etc. To what extent these regulatory entities, which sometimes overlap, but also leave voids, will survive in a global market is something to ponder. The case for one regulatory body with wide international authority is becoming stronger as the case for state-level bodies become more dubious. Although Tavakoli does not make these two points explicitly, one wonders.

Some readers might feel turn off by a few Warren-and-I type of statements that seem a bit self-serving. And a case can be made that perhaps many investors deserved what they got because in their greedy quest for unreasonable returns they overlooked basic principles of prudence --a point that does not come across very strongly in the book. Lastly, Chapter 13 (The Fogs of War, Religion and Politics), a very interesting chapter in its own right, is probably better suited to be dealt with in a separate (next?) book. That said, these are minor sins in an otherwise excellent book.

The following paragraph, which appears close to the end of the book, summarizes the main thesis,
"Washington is supposed to provide a strong national defense; but we were attacked from within our borders-sometimes by those charged to protect us. Washington failed in one of its more important duties, Washington failed to protect our money."

Further down she adds, "Homeland security requires a secure homeland currency." I doubt that anyone would be left indifferent by these provocative, but well-argued, points.

There is no free lunch they say, at least according to most economists. And certainly lunch with Mr. Buffett is far from free ($ 2.11 million, according to eBay, June, 2008). Clearly, Tavakoli made a good decision when she accepted Mr. Buffett's lunch invitation. However, for the rest of us, who are unable to pony up the two million or unlikely to get invited by the great investor, this book is a very good substitute.

I am not a finance professional, and my understanding of financial markets, especially derivatives, is basic, but I was riveted by DEAR MR BUFFETT. Much of it is because of Ms. Tavakoli's writing style: clear, accessible, and witty. Where definitions are needed, she supplies them, and her documentation is suburb. Despite the complexity of her topic, it was an easy read. In fact, she makes such a persuasive case that I came away from the book wondering why more experts didn't see the meltdown coming. At the same time, it was reassuring to know that Mr. Buffett's (and Ms. Tavakoli's) financial philosophy, ie not buying something unless you can pay for it, investing with caution, has prevailed. I would recommend this book to any investor -- large or small -- who's seeking direction for the future.

Just finished reading this book after borrowing it from my public library from the Buffett section. What a fantastic, opinionated, cynical, but always insightful, honest and intellectual commentary on the current financial crisis... Having read tons of books on current economic conditions (some good ones worth reading more than once include "Financial Shock 360", "Two Trillion Dollar Meltdown", "More Mortgage Meltdown"...) I'd highly recommend this book as a must-read as well.

unfortunate choice of title might lead people (like it did me) to think this is primarily a book about Mr. Buffett and his investing techniques (and there are a ton of such books out there). However, the book is actually a very incisive commentary on how the current crisis came to be, and how various stakeholders - banks, regulators, rating agencies, investors, fed, etc. have been reacting to it. Ms. Tavakoli is an expert on financial instruments such as CDOs that have played a primary role in the current crisis via their misuse, and at some point she had established an acquaintance with Mr. Buffett. Her reference to Buffett in the title comes from the fact that in her commentary, she sprinkles wisdom about what a sensible, ethical person would do in situations she is discussing, and who better than Mr. Buffett to use as an example... and surprisingly, you end up appreciating the greatness of Mr. Buffett also more along the way, typically more than most of the run of the mill Buffett books. And Ms. Tavakoli has no sacred cows, when I was reading about her comments on Bill Gross, and Vikram Pandit for example, and Jamie Dimon and BofA's Lewis, I was just shaking my head in bemusement...

one negative aspect is, Ms. Tavakoli associates herself with Mr. Buffett very frequently in her text, such as, "Buffett and I would have done this", and "Buffett and I would have done that", or "he/she thought like Buffett and me" etc. I could say similar things such as "Obama and I thought this" and "Obama and I thought that", while President Obama couldn't care less. If you can live through this annoying aspect especially in the first 2-3 chapters, Ms. Tavakoli wins you over with her intellect and witticisms, and by the end of the book, it does seem clear that Mr. Buffett has become a decent acquaintance of the author, and you'd forgive Ms. Tavakoli for being so enamored of him.

Once again, I highly recommend this book. I've ordered her other (technical) book on CDOs from Amazon, and will be ordering this book as well, for a repeat reading and permanent place in my personal library.

Tavakoli has written an interesting book that is a valuable contribution to the current literature on the collapse of the twin real estate and stock market bubbles in 2007-2008.She does an excellent job in discussing the basic speculative nature of securitization,financial derivatives, collateralized debt obligations,credit-default swaps,sub prime mortgage backed bonds,etc.Her demonstration that Warren Buffett clearly saw the immense dangers of securitization and financial derivative use engaged in en masse by thousands of unregulated hedge funds is accurate.She is one hundred percent correct in showing that Buffett understands that the Efficient Market Hypothesis(EMH),that is taught to all MBA students in finance and Ph.D candidates in economics, is equivalent to teaching them the complex ,artificially constructed ,a priori based ,Ptolomaic system of astronomy.The basic claim of the EMH is that there are no bubbles. There is not a shred of historical or statistical support for EMH,which proclaims that the time series data for price changes in financial markets is normally distributed(or log normal). All the evidence shows that the Cauchy distribution ,and not the Normal distribution,fits the data by far the best. Again,it was Keynes who first demonstrated that the EMH is false under conditions of uncertainty or ambiguity.

My major criticism is that there is no historical background given the reader about world class philosophers and thinkers from the past who have observed the causal connections that exist between banker induced and sponsored speculation and the guaranteed economic downturn that inevitably occurs sooner or later.Adam Smith's 80 page discussion in the Wealth of Nations (1776) about the importance of making sure that the central bank prevents private commercial banks from making loans to speculators culminates in Smith's conclusion that allowing the banks to lend to projectors(Keynes's speculators and rentiers),prodigals,and imprudent risk takers leads to the destruction and waste of the depositors' savings .Smith was well aware of the damage that resulted from the Mississippi and South Sea bubbles that hit nearly simultaneously in 1719-1721.What is happening today is just the latest confirmation of the causal connection between private banker financed and induced speculation and economic hardtimes.

Tavakoli is correct that " Warren advocates diversifying only into assets you understand well "(p.16-17).However,this is very similar to J M Keynes's view that you concentrate your investments only in companies that you have a great deal of supporting evidence and knowledge about their business [This ,of course,is Keynes's application of his " weight of the evidence " criteria presented in detailed form in chapter 26 of the A Treatise on Probability(1921)] .Buffett has long made it clear that he is a follower of Keynes's approach.There is a one liner from Keynes on p.55. A full understanding of Buffett requires an understanding of Keynes.This is missing in the book.


Tavakoli is correct that the collapse of both bubbles in 2007-2008 is not a Black Swan. It can be argued,however, that it does fall under the rubric of Mandelbrot's Grey Swan concept once it is realized that such outcomes,while supposedly extremely rare ,when based on the incorrect application of the normal distribution,are 100-1000 times more likely to occur if thick and fat tailed distributions are correctly used.An additional minor criticism is that she has ignored that both Smith and Keynes had correctly concluded that banker induced and financed speculation leads to an inevitable collapse in the real economy.This has been repeatedly,if infrequently, going on for 400-500 years worldwide.


One can conclude that an investor can learn much from reading Buffett,Smith,and Keynes.

It is clear that Ms Tavakoli is a very bright and knowledgeable author, but it takes more than that to write a good book. While I enjoyed reading many parts of the book, I had two main problems with the it.

First, it was unclear to me what the author's central point was. There was a smattering of financial and investment information, but then at other times she drifts and starts discussing politics and the Middle East. Great investors must consider and digest diverse facts and information, but Tavakoli left me scratching my head as to where she was going. Her discussion on various derivatives mixed with other seemingly random investment wisdom was poorly organized. I could not figure out what her central point was.

Second, the author's tone is too self-congratulatory. She tries way too hard to associate herself with Warren Buffett (a great investor and brilliant thinker) as evidenced by the unusual book title and numerous references to her professional relationship with Buffett. Furthermore, she tries to convey to readers that she saw the financial crisis coming and quotes herself from her previous appearances on TV and her own writings. While I have little doubt that Tavakoli is very intelligent, her self-promoting behavior does not do her justice. She appears to be more concerned with promoting herself than with delivering value to her readers.

Besides being an outstanding investor, Buffett is also a master at human relations and understanding people. Many of Buffett and his partner, Charlie Munger's book recommendations have to do with human psychology. Perhaps this trait has contributed to their business success as much as their financial acumen. It is clear that the author, like thousands of other people, admires Buffett greatly. Perhaps a look into some of those other non-financial traits would have helped her deliver a better book.

An entirely different kind of book that not only tells the story of the mortgage meltdown but shows HOW it was foreseeable, real-time, at least by some. Reading this book will give every intelligent reader the confidence to trust their own judgment in the future and not be sold a bill of goods. NINJA loans? Come on, we all knew that loans given to people with no job and income verification weren't a good thing. Tavakoli tells it like it was, is, and will (sadly) probably be again -- and with some pretty funny lines along the way ("It's great to have an open mind, but don't leave it so open that your brains fall out," in reference to a Stan O'Neal op ed). Outrage tends to go down better when it's coated with a sense of humor. Juxtaposed against the story of the meltdown is maybe the most important Buffett lesson of all that Tavakoli expertly teases out for the reader: first do no harm and stay out of danger's way. That may be the most important take-away of all. This book is a real service and was an absolute delight to read.

I had high expectations for this book based on a recommendation I received to read it, but I found this to be little more than a review of what has transpired in the markets over the last few years. The author does provide some insight into how we got into the current situation, but nothing more than what is already available in the many economic blogs that are well regarded online. The author does sprinkle in a few tidbits about
how Buffett's style of investing is different than what occurred at the large Wall Street firms, but effectively makes the same point over and over again throughout the book.

The author does seem to be an expert in the field of credit derivatives. However, my husband works in a specialized financial field that is briefly touched upon in the book, and when I showed this section to him he found some significant errors in what was discussed. This brings into doubt the other subject matter discussed in the book.

Finally, after dozens of mentions of how she saw the bubble and economic aftermath coming, the author's arrogant self-congratulatory tone gets really old very fast. Overall, I found this book to be underwhelming, and there are better books out there if you're looking for financial advice and insight.

"Dear Mr. Buffett" is a non-fiction masterpiece. If it was up to me, I would make reading this book a requirement for the White House, Congress, and the Fed with the hope they could use the information to do something more sensible than they have to date. This book tells a story of our financial system gone mad.

Ms. Tavakoli cleverly chronicles how many in finance and investing have moved away from investing in value to investing in intangible instruments. Large scale gambles on these intangible instruments have destroyed a tremendous amount of value, made a very few rich, and left taxpayers deeply in debt and our economy in shambles.

This book is a must read for anyone who wants to understand that the most pressing threat to this country isn't Islamic radicals, it's greedy people in finance who are destroying the trust and integrity of our financial system and their toadies in government who look the other way while they do it. The culprits of our financial angst are in plain view within the pages of "Dear Mr. Buffett".

I used to take a simplified view on the `division of labor': while the manufacturing sector is responsible for "value-adding," the financial sector got the role of "price allocation."

As an engineer, I'm used to look at the economical activities only from the value-adding chain: e.g., from crude oil, to polymer, to fiber, to fabric, to cloth and carpet, etc. Engineers are keenly aware of various self-serving conducts involved in this production chain that put integrity and honesty at risk. Leaving unchecked, environment polluted, workers' safety compromised, child labor abused, lead paint got into toys, unsafe peanuts became food, and melamine added to milk. The list is long. The financial people, on the other hand, are fine. The market is efficient, and they do not deal with real material anyway.

I should have known better.

Tavakoli's book succinctly educated this reader that the financial sector also has its fair share of misconduct driven by greed, dishonesty, and fear familiar to all; and the damages can be even more dramatic. By misaligning prices to the corresponding values, price-following manufacturing activities would consume limited (natural) resources to their inefficient usages. (e.g., building cars and houses people cannot afford).

By Tavakoli's description, if I read it correctly, this price misalignment was exuberated by excessive leverage, compounded by aggressive risk-taking, and fueled by greed and dishonesty of some. While logic and the fundamentals both point to the un-sustainable, human mind tends to believe and hope for "more of the same (profits) should still be there." Now the damage has became painful to bear for the society as a whole.

The book must be useful for those in the financial sectors, but need not be limited there. All who share the genuine interest on the growth and prosperity of this earth could benefit from the lessons described.

As for those whose primary interest is self-advancement in a fair and civil society (me for one), Mr. Buffett also has a point: "start with what is legal, but always go on to what we would feel comfortable about being printed on the front page of our local paper." (page 109)