Fannie, Freddie Allowed to Boost Capital Buffers by Billions; How I managed risk; How to invest like Warren Buffett; Warren Buffett Protege to Leave Berkshire, Start Own Firm; Class participation strategy No. 3

By Whitney Tilson

Monday, September 30, 2019

1) Good news this morning for government-sponsored entities Fannie Mae (FNMA) and Freddie Mac (FMCC), as the Treasury has effectively ended the illegal “net worth sweep”: Fannie, Freddie Allowed to Boost Capital Buffers by Billions. Excerpt:

Fannie Mae and Freddie Mac will be allowed to boost their capital by billions of dollars to protect against potential losses, a key step in the Trump administration’s push to free the mortgage giants from U.S. control.

Fannie will be permitted to retain earnings until its capital buffer hits $25 billion, while Freddie will be allowed to hold $20 billion, the Treasury Department and the Federal Housing Finance Agency announced Monday. Last year, Fannie reported net income of $16 billion and Freddie made $9.2 billion, signaling it could take more than a year for the companies to reach the administration’s new goal.

Treasury and FHFA, Fannie and Freddie’s regulator, also committed to making more changes to the bailout agreements that were struck after the companies were rescued with taxpayer funds at the height of the 2008 financial crisis.

The agencies said they may make additional tweaks to Fannie and Freddie’s capital structures, as well. The moves are all part of an effort – outlined in a plan released by Treasury earlier this month – to end the companies’ decade long conservatorships and return them to the private market.

In the category of speculative investments – meaning positions sized 3% or smaller – Fannie Mae continues to be my favorite.

2) In this video from one of my seminars a year ago, I answered a student’s question about How I Managed Risk (5:02).

3) I’m quoted in this CNBC article on How to invest like Warren Buffett. Excerpt:

Former hedge-fund manager and Buffett follower Whitney Tilson attributes the 89-year-old’s success to his “off-the-charts smarts,” his more than seven decades of experience and his temperament.

“What he does is simple in concept but difficult in practice,” said Tilson, now the founder and CEO of Empire Financial Research and publisher of a daily subscription newsletter. He has attended 21 Berkshire Hathaway annual shareholder meetings in Omaha, Nebraska.

“There are a lot of people, myself included, who have tried to do what he does, but he has done it better than anyone for a longer period of time,” he added…

Tilson said to invest like Buffett, you need to become a “learning machine” for your entire life.

“You need to get on that steep learning curve at a young age and never get off,” said Tilson…

However, don’t invest everything Buffett-style, warned Tilson.

In fact, he thinks many Americans are better off putting their money into index funds.

“Most people should just index their money and spend time with the family, reading good books and building their career,” he said.

For one, actively investing your own money takes a lot of patience. And Tilson doesn’t think all people are wired for that.

“The average human being wants to make money quickly,” he pointed out. “There is no surer way to lose money quickly than trying to make money quickly.”

It is also hard work. Even if you want to pick 5 or 10 stocks and hold them for a long time, it requires some effort, added Tilson.

So, if you want to invest like Buffett, do it with 10%, 20% or 30% of your total investments and put the rest in an index fund, he said.

4) I wish Tracy the best and am sure she’ll be successful: Warren Buffett Protege to Leave Berkshire, Start Own Firm. Excerpt:

Tracy Britt Cool, one of Warren Buffett’s key lieutenants in recent years, is leaving Berkshire Hathaway to create a mini Berkshire of her own.

Ms. Britt Cool joined Berkshire in 2009 at age 25 as Mr. Buffett’s financial assistant, a job he created for her. In 2014, she became chief executive of Pampered Chef, a cookware company owned by Berkshire.

Now 35, Ms. Britt Cool wants to build an investment vehicle that acquires companies for the long term, like Berkshire does.

“I want to build a long-term platform and a long-term vehicle to acquire and build businesses,” Ms. Britt Cool said in an interview. “There are companies that I think there’s a lot of value in helping them get to the next level, but they’re too small for Berkshire.”

5) Here’s my third strategy for winning the class participation game:

3. Don’t speak in the first half of class.

In general, the professor uses the first half of every class to establish the facts of the case, while the real analysis occurs near the end. Let your classmates make “chip shots” that merely demonstrate that they read the case, while you demonstrate sophisticated thinking during the meatier discussion in the second half of each class.

Best regards,


Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.