Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street

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9780470406786: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street

Janet Tavakoli takes you into the world of Warren Buffett by way of the recent mortgage meltdown. In correspondence and discussion with him over 2 years, they both saw the writing on the wall, made clear by the implosion of Bear Stearns. Tavakoli, in clear and engaging prose, explains how the credit mess happened beginning with the mortgage lending Ponzi schemes funded by investment banks, the Fed bailout and its impact on the dollar. Through her narrative, we hear from Warren Buffett and learn how his enduring principles caused him to see the mess that was coming well in advance and kept him and his investors well out of the way.

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Review:

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.

  • From the Back Cover:

    Praise for Dear Mr. Buffett

    "Janet Tavakoli warned that the biggest credit bubble in world history was coming well in advance. Now she explains how the world could have avoided this disaster and how we can prevent it from happening the next time."
    Jim Rogers, author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker

    "Janet Tavakoli writes about the exotic, abstract financial instruments that helped implode the U. S. financial markets, and she writes in a clear, sprightly way. She knows a lot, and translates it well. Contrasting the shenanigans of recent years against the good analysis and common sense of Warren Buffett is appropriate, and helps to illustrate the levels of irrational behavior."
    Adam Smith (George J. W. Goodman), author of The Money Game and Supermoney

    "If you are an investor, either directly or through mutual funds or managed accounts, you must read this compelling book.You should understand how name-brand institutions like Merrill Lynch, Citigroup, Wachovia, and UBS collectively lost hundreds of billions of dollars in ill-conceived products they invented and sold to investors who lost much more. Janet Tavakoli saw this coming and explains what happened clearly, logically, and persuasively. The juxtaposition of Buffett's investment philosophies provide sharp contrast with those of the major institutional participants who are responsible for the current debacle. Knowing how this disastrous phenomenon evolved will forever change the way you evaluate your investments and/or those intermediaries who make them on your behalf."
    Eric Gleacher, Chairman, Gleacher Partners LLC

    "Janet Tavakoli has a gift for using personal anecdotes and clear language to explain the complex instruments of structured finance. Dear Mr. Buffett is an insightful look at the current global credit crisis in language that the layman can grasp. This book is a must-read for every trustee allocating to alternative investments."
    John P. Calamos SR., Chairman, CEO, and Co-CIO, Calamos Investments

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