Jeff Matthews on GE at Value Investing Congress

Jeff Matthews is with Ram Partners. Matthews just published his book today. Two years ago the annual meeting he took 30 pages of notes. This past May he took his computer and took notes. Had great words to say about Lee Cooperman. He bought Lynne Broadcasting for a $1. Thinks it was bought by AT&T for $131 a share. The next time he talked to Lee he talked about a complete dog. Lee also testified as being long Tyco and testified against it.

Voices of scepticism are being stiffled. Einhorn last may said Lehmand need to be recapitalized last May. He was also dead right about Allied Capital and he was persecuted for that.

Value investors don’t change the value of assets they just shed light on those values.

Evaluating GE: What would/did Warren Buffett do?

Buffett reads like a maniac. He’s read more than most others in financial industry. When the Asian crisis hit Charlie and I had to read and think eight hours a day. Most of us get brain lock when are largest positions go against us.

Is this within my circle of competence? Is it a good business? Easy to understand? Does it have a moat? Throw off cash? Is management great? Do they manage earnings? Do they manage for the long-term or do they play “gin-rummy” with assets? Is the board of directors aligned with shareholders? What’s the stock worth… and where is it offered today?

Buffett probably could answer these questions for most companies for well over a thousand stocks. He could run his own CNBC show, Sane Money with Warren Buffett.

GE is has morphed a lot in recent years. It was because a finance dependent company. It probably is easy to understand for Buffett but it is not a simple business.

Is GE a good business? Not as attractive ratios as some others

Does it have a moat? Their “core competency” is a global recruiting and nurturing of the world’s best people. This would likely not appeal to Buffett.

What about GE Capital? Most of GE Capital is mostly commercial paper. This is not the moat you want.

Does GE throw off cash? Yes, but look at what they do with it. The bought back $500+ billion in stock at expensive prices. Their tax rate is also declining from 30% to recently 15%.

“The Four Types” of GE culture. The lowest common denominator here is that they make the number or they are gone.

GE was complaining about the stock in 2002 since it was at the same level as at the end of 1997. Then in 2004 they claimed they are strong now. Then they started a broad operating initiative called Simplification that looks Dilbert like.

In 2006 and 2007 this imperative to define GE Capital as a growth engine they massively increased their financial position just as the subprime area bombed.

Acquisitions were all over the place in 2007, including iVillage.

GE Board compensation in 2007 gets $250,000 to each non management directors and they are well covered in insurance. Buffett provides Board no insurance and $900 for each meeting Board members attend.

Warren Buffett buys $3 billion in GE preferred stock, 10% dividend callable after 3 years at 10% premium. He gets warrants instead.

He is not going to answer what GE is worth. There is a cold wind blowing on Wall Street. The restrictions on short selling cause hedge funds to sell financial stocks.

2 thoughts on “Jeff Matthews on GE at Value Investing Congress

  • October 7, 2008 at 4:03 pm

    Great write up. Did Pabrai speak at the conference today. Just wondering if he had said anything about PNCL.

  • October 7, 2008 at 5:21 pm

    Thanks Larry. Glad you enjoyed the notes. Pabrai did speak today at the conference. I had a technical error at the beginning of his presentation, which caused me to lose my notes from the first 10 minutes or so of his talk. I’m going to get a copy of his slides so I can fix the missing intro.

    Pabrai did talk about PNCL during the Q&A session. I’m on the bus home right now, so I’ll have to dig out my notes later. I believe Pabrai said he learned something new from the experience and is adding a new item to his checklist concerning win-lose situations.

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