Warren Buffett wrote to Leon Cooperman about stock buybacks, taxing the rich, and Henry Singleton.
When Cooperman was mulling a presidential run, Buffett joked he could “deliver Nebraska” for him.
Cooperman shared a trio of messages he received from Buffett in his newly published memoir.
Warren Buffett wrote to Leon Cooperman about subjects ranging from Henry Singleton and Teledyne to stock buybacks, income taxes, and Cooperman’s potential presidential bid.
Cooperman, the former CEO of Goldman Sachs’ asset management division, shared three missives from Buffett in his newly published memoir: “From the Bronx to Wall Street: My Fifty Years in Finance and Philanthropy.”
Here are the three messages and the context around them:
1. Dear editor
Cooperman, who converted his Omega Advisors hedge fund into a family office in 2018, penned an open letter to the editor of Business Week in 1982. He was annoyed by the magazine’s critical profile of Henry Singleton, the cofounder and CEO of Teledyne.
In his letter, the billionaire investor trumpeted Singleton’s skill at growing his conglomerate through acquisitions, and driving performance at Teledyne’s subsidiaries. Cooperman also praised the industrialist for buying back stock at attractive prices, investing the spare cash from Teledyne’s insurance business into stocks, and building the company’s cash reserves.
Buffett wrote him a note after reading the letter, which Cooperman still keeps framed in his office:
I always enjoy both the quality of your writing and the quality of your thinking. Your letter to Business Week regarding Teledyne was 100% on the mark.
2. Buybacks, good and bad
Cooperman praised Singleton again at a value-investing event in 2007. He pointed to the Teledyne chief as an example of an executive who conducted buybacks the correct way, as he only repurchased shares at a discount to their intrinsic value.
Buffett wrote to Cooperman after his speech to express his agreement:
Henry was a manager that all investors, CEOs, would be CEOs, and MBA students should study. In the end he was 100% rational and there are very few CEOs about whom I can make that statement. The stock repurchase situation is fascinating to me. That’s because the answer is so simple. You do it when you are buying dollar bills at a clear cut and significant discount and only then.
As a general observation I would say that most companies that repurchased shares thirty years ago were doing it for the right reasons and most companies doing it now are wrong when doing so. Time after time I see managers who are attempting to be ‘fashionable’ or, perhaps subconsciously, hoping to support their stock.
Loews is a great example of a company that has always repurchased shares for the right reason. I could give examples of the reverse, but I try to follow the dictum ‘praise by name, criticize by category.’
3. Delivering Nebraska and taxing the rich
Cooperman briefly mulled a presidential run in 2011. He drew up a nine-point platform that included pulling American troops out of Iraq and Afghanistan, rebuilding US infrastructure, deregulating the domestic energy industry, and reining in government spending.
The veteran investor also took aim at people earning over $500,000 a year, proposing they should face a 10% income surcharge for three years. Cooperman sent his plan to Buffett, and directly asked the Berkshire chief what he thought the maximum tax rate on the highest-earning people in the US should be.
Buffett voiced his support for both Cooperman 2012 and a minimum tax in his reply:
If you run for president, I can deliver Nebraska. Just let me know when to gear up.
There are two possible approaches to increasing the rates on those having taxable $1 million or more with a second step-up at $10 million. One would be to increase the rate at $1 million by five points and at $10 million at ten points.
Another approach would certainly be to have a minimum tax (counting both income tax and payroll taxes paid by or on behalf of the taxpayer) of, say, 30% at $1 million and, say, 35% at $10 million. The latter tax would hit me much harder and I lean toward it. Just changing the marginal rate would hardly hit me at all.
Let me know your thoughts. Whatever they are, you’ve still got my vote.