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Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street Hardcover – January 9, 2009
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Morgan Stanley's David M. Darst on Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street
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:
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.
"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's Greg Newton
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I myself can hardly claim to be any kind of expert in high finance, my own training is in scientific research; I began to worry about the housing market in late 2006 when I noticed half the books in the personal-finance section at local bookstores were "make money fast by flipping houses" and actually exclaimed out loud, "it's the Dutch Tulip Bubble all over again!"
But although I saw a crash coming, I had no idea just how much worse it would become due to games being played on Wall Street. After reading with JT and some others have to say about the meltdown I have gone from being saddened to being enraged. And relieved that my wife and I went into this crisis with little debt.
Anyway, Tavakoli's book is highly recommended.
For a sample of her warnings before the collapse, see:
When you read the analysis you can see that the so-called credit crunch was completely predictable and you also worry that the current course of government action will not produce a happy ending.
Essential reading for students of the markets.
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)
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