Whitney Tilson is Bullish on Financials and Buffett

By on December 5, 2011

Whitney Tilson - T2 PartnersSteve Forbes recently interviewed Whitney Tilson, Founder and Managing Partner, T2 Partners, about how he picks stocks and his opinion of the current environment. Tilson gained some notoriety by forecasting the housing market’s woes on CBS’s “60 Minutes” back in 2008 (link).

Tilson calls himself an opportunistic value investor who “at the end of the day tries to buy 50 cent dollars and short five dollar dollars.”

Tilson added that, “they [his hedge fund] pray in the church of Graham-Dodd, Buffet and Munger.” He tries to imagine what Warren Buffett and Charlie Munger would do if they had $200 million to invest.

Tilson said he shorts stocks which has been painful, but recent shorts have been working out well.

Forbes asked Tilson if he believes Buffett is losing “his mojo.” Tilson mentioned Berkshire-Hathaway (BRKB) is their largest position and the risk is there if Buffett starts “losing it” by allocating capital poorly. However, Tilson expressed amazement at Buffett’s nimbleness and spryness at 81 years of age.

Tilson commented on Buffett’s recent successes investing overseas in PetroChina (PTR) and Israel’s Iscar, for example. He also said Buffett’s view of railroads as an investment changed when he took a position in Burlington Northern. Buffett also went into the tech sector for the first time by making an investment in IBM; his second largest investment ever. Tilson considers IBM a much less risky tech stock and will likely be earning more money in 10 years than it does now.

Tilson said Buffett had announced a share repurchase program for the first time in 50 years for Bershire-Hathaway. Tilson believes this makes a lot of sense.

To put its size in perspective, Tilson said Berkshire-Hathaway has almost as many employees as GE. Tilson indicated buying back BRKB shares, along with shares in BN and IBM was a good use of cash, which basically earns nothing.

Tilson considers BRKB a good stalwart for a portfolio since by his estimation it’s 35% undervalued, growing at 10% per year, with Warren Buffett running it.

Forbes asked Tilson if he believed there were more bargains now than in 2008. Tilson replied, “yes and no.” He said it was nothing like what you could get in late 2008, early 2009, “20 cent dollars.” He continued, “on the other hand the world was on the edge of armageddon and things could have gotten really, really bad.” He added, “things were cheaper then, but you were taking greater risk.” Tilson said he finds stocks today that, on a risk-adjusted basis, are close to being as cheap as back then. He mentioned financials Citigroup and Goldman Sachs which aren’t too far above their valuations back then, but “are massively less leveraged.”

Tilson commented on his success investing in American Express and Wells Fargo off the bottom and recently (August) investing in financials again.

The interview continued with Tilson’s view and commentary on Bank of America (BAC), Citigroup, JP Morgan Chase (JPM), TARP Warrants, Italian bonds, U. S. Treasuries, value investing, and T2’s poor performance this year (down over 20%).

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