Kass, Berkshire's Bear, Is Ready to 'Surprise' Buffett
Hedge fund trader Doug Kass had his first brush with fame at the age of 10, when he appeared on a U.S. television quiz show, Tic-Tac-Dough, and won every day for a week.
More than five decades later, Kass might find another sort of celebrity this Saturday when he will have the opportunity to quiz billionaire investor Warren Buffett at Berkshire Hathaway Inc's annual meeting in Omaha, Nebraska.
Buffett in March handpicked Kass, founder of hedge fund Seabreeze Partners Management Inc, to be Berkshire's first "credentialed bear" to attend the meeting, and "spice things up."
Kass, 64, has shorted Berkshire stock in a bet the price will fall. He is one of three members of an analyst panel that, along with shareholders and journalists, gets to question Buffett and Berkshire Vice Chairman Charlie Munger for five hours at the meeting, which draws more than 35,000 people to Omaha each year.
"I had a lot of fun going to the Woodstock music festival on Max Yasgur's farm in Bethel, New York in August 1969. I expect to have almost as much fun - and remember it - going to the Woodstock of Capitalism in Omaha," Kass said in an interview.
He declined to disclose the size of his Berkshire short, but called it an "average-sized position" that he initiated only a few days before Buffett's invitation.
Kass is known for his maverick positions, and his stock picks and pans have been followed widely by virtue of his prolific writings for TheStreet.com.
He has a column - at one time called "The Contrarian" - to discuss neglected or undervalued stocks and sectors that he calls "purchase candidates," as well as fully exploited or overvalued investments that he thinks are worth selling short.
In April, Kass told clients and readers that he was bearish on economic growth and stocks.
"I maintain an out-of-consensus view that a recession in the U.S. by 2014 holds about a 50 percent probability," said Kass, who added that he was shorting equities.
Kass grew up in Long Island, New York and says he learned the stock market from his grandmother.
"My Grandma Koufax taught me the stock market when I was 15 years old," he said. "I spent my vacations as a teenager 'watching the tape' in a small brokerage firm in Rockville Centre, Long Island. I bought my first stock, Teledyne, in 1967."
His childhood nickname was "The Professor" because he had top grades in school. After majoring in philosophy and religion at Alfred University, while avidly participating in the 1970s "make love not war" peace movement, Kass took his first job working with American political activist Ralph Nader.
Kass began his investment career as a housing analyst at the investment bank Kidder Peabody in 1972. He later worked for the billionaire investor Leon Cooperman, who runs the hedge fund Omega Advisors. Kass founded Seabreeze in 1997.
"He's bright, thoughtful, analytical - and maybe he tends to the dark side a little bit too much," Cooperman said in a telephone interview. "At times the consensus is right, at times the consensus is wrong. And I think he relishes being out of consensus."
Hate Mail Over AOL
Kass said the toughest criticism he ever faced as a short-seller was in late 1999, when he trashed Time Warner's $112.1 billion merger with AOL. He called it overpriced, with "no synergies between the two companies and weak earnings prospects.
"There were a lot of nasty emails and (institutional investors) were interviewed and attacked my position" in the press, Kass recalled.
He was proven right. The merger never met expectations, and the combined company's stock price sank from $65 into the single digits. Time Warner Inc spun off AOL Inc in 2009, a transaction valuing the latter at less than $3 billion.
"It is widely regarded as a seminal deal at the end of the Internet boom and a huge mistake - perhaps one of the worst M&A deals in history," Kass said.
He has also had his share of wrong calls. Kass said his worst short bet was against Amazon.com Inc shares 15 years ago.
"It was a bad, bad loss," he said, but did not give details.
Kass has also this year bet against U.S. Treasuries, considering it "the trade of the decade."
But it hasn't worked out so far, as 10-year Treasury yields have plunged amid concerns about global economic growth, falling below 1.65 percent this week from over 2 percent in mid-March.
Since being chosen as Berkshire's bear in March, Kass says he has not communicated with Buffett or Munger, and he does not want to give them any hints on what issues he plans to raise.
"I want it to be a surprise and I don't want Mr. Buffett to consider the questions until the meeting," Kass said.
He has previously raised red flags over Berkshire's large size and Buffett's advanced age of 82, saying it will be difficult to replace "the single greatest stock investor of all time."
Kass said he is not nervous about challenging Buffett in front of his most ardent supporters, but said this weekend could prove "the craziest thing" he has ever done.
He will certainly be better prepared than he was for one question on Tic-Tac-Dough.
Kass recalls one live broadcast where he was asked to name the holiday that falls on the Sunday before Easter, and was given a hint by host Jack Barry that it was the name of a tree.
"Dogwood Sunday," Kass answered.
"Doug, I am sorry," Barry replied, according to Kass. "The correct answer is Palm Sunday. Haven't you ever heard of Palm Sunday?
"No, Mr. Barry. I never heard of Palm Sunday. I am Jewish."
Barry, who was also Jewish, fell over laughing into a nearby pyramid of Crest toothpaste boxes set up for a commercial.