@VIC Jeff Matthews: Evaluating GE: What Would / Did Warren Do:

After my recent purchase of GE (GE) and what Berkshire’s (BRK.a) Warren Buffett did days later, this presentation intrigued me from the day I saw it.

Runs RAM Partners LP, and is author of this NEW book:

Evaluating a Company:
– Read every report and Chairman’s letters
– Is it a good business, do I understand it, does it have a moat, does it throw off cash?
– Is management good, honest, do they manage for the long term?
– Is Board aligned with shareholders?
– What is stock worth, what is it priced at today?

Rather than seeing price first then evaluate, Buffett look at company first and figures out what he thinks it is worth.

Is a fan of CNBC’s Jim Cramer (my note…..Cramer is a fool)

GE
Does business in (in descending order of revenues) infrastructure, commercial finance, GE money, industrial, NBC universal, healthcare.

GE “core competency” is the recruiting and training of the world’s best people according to Jack Welch in 2000 Chairman’s Letter.

GE Capital’s business and ratings is stable and NOT at risk.

Bought back $25 billion in stock 2005-2007 at average price of $35. Recent offering of $3 billion was at $22.

GE has had a falling tax rate from 30% in 2000 to 15% in 2007, inflating the net earnings number.

GE Culture (+ means “good” and – means “bad”):
+ Numbers + values = good manager
– numbers – values = gone
– numbers + values = eventually gone
+ numbers – values = hardest to part with

The “lowest common denominator” of manager at GE “makes the numbers”

Institutional imperative: “Companies do stupid things because they can”. This lead GE to get into the mortgage business by pursuing this “growth” and GE caught the mortgage problem.

In short, Matthews was not very encouraged by GE. Matthews did point out accurately the pitfalls of Immelt being the “guy who followed THE GUY” who was Jack Welch. The same holds true for managers in sports or of any business.

If he was in charge of GE, he would keep Immelt there and change the board of director and alter expectations. Immelt ought to focus on core business and not worry about numbers.

Matthews thinks the GE deal was a bit of a “please do this” scenario and points out Buffett did not take a 9% stake like he did in Coke (KO) and American Express (AXP)

Disclosure (“none” means no position):Long GE, none
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