Thursday, March 31, 2011

How Dumb is David Sokol?

David Sokol, the Berkshire Hathaway exec who resigned following questionable trading in Lubrizol stock, Berkshire ultimately took over Lubrizol, appeared on CNBC this morning to defend his trading.

Since it is likely that the trade is under investigation by at least the SEC (if not the DOJ), the last thing Sokol should be doing is spending 30 minutes on CNBC defending his position. As any lawyer will tell you, keep your mouth shut in such cases, you don't know what you say will come back to be used against you.

A very imprudent move by Sokol, as the Lubrizol trade itself appears to be.

Further, during the interview with CNBC, Sokol said other Berkshire executives held positions in stocks that they later identified as acquisitions. He singled out the example of Berkshire vice chairman Charlie Munger owning a stake in Chinese car maker BYD before suggesting it for an investment.

I can't imagine this quote is going to endear him with Munger, or Buffett. The differences between the Munger situation and that of Sokol are major. Munger's position was certainly known to Buffett, if it was known to Sokol. Although Sokol claims he informed Buffett of his position in Lubrizol, he did not tell Buffett he had just bought the position the week before. Most important in the BYD situation, although Berkshire has an investment position in BYD, it is far from the same thing as Berkshire making a bid for a company, which it did in the case of Lubrizol. The Lubrizol acquisition by Berkshire resulted in an immediate $3.2 million in profit for Sokol.

The big question remains: What is David Sokol doing on television discussing his trade, which can do nothing but bury him deeper? Not bright.