Investment advice

from a columnist, Chuck Jaffe, on C.

There’s a nod to the Great Buffett:

But as Warren Buffett once noted, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” [1]

The key sentence in Chuck’s missive seems to be:

Following Warren

Citigroup is clearly no better than a “fair company” and might be a whole lot worse.

Law school question of the day:  In the Philippines, did Chuck J commit criminal libel?

Short-form answer:  Corporations are persons, so they have a right under the libel laws to their “honor.”  But Citi is also a public figure, and has to prove malice.  Chuck J has a qualified privilege under the Constitution as he was merely exercising his freedom of expression, with an apparent view to giving his readers investment advice.  (Qualified privilege means that the presumption of malice, or malice in law, in libel does not lie.)  But if malice in fact is proved, then Chuck J is guilty of libel.  There is however jurisprudence and good authorities to the effect that malice is very difficult to prove, particularly in a criminal case where proof beyond reasonable doubt is needed to convict.  It is submitted that Chuck J did not commit libel.

The answer given above provides legal “cover” for those who write in the business pages of Philippine newspapers that, for example,  a certain company, say X, is not a good buy in the stock markets. X cannot use the libel laws to stifle public discussion of its business prospects.

*****

[1]  Buffett seems to say that a wonderful company at a fair price is a better bet than a so-so company at a “low” price.  What is a fair price?  Usually, it means a P-E ratio that reflects the fundamentals of the company.  If it is wonderful, it should grow over the long term, so it has a high but fair P-E ratio.  A so-so company is one whose prospects are perhaps just average, and it will have an average P-E.  I take this to mean that when the so-so company has a below-average P-E, that’s a wonderful price.  But this means that the return on the wonderful company will be average, because others like Buffett supposedly will have driven the P-E ratio to a high level.  And the return on the so-so company will be above average, because it will start from a “pessimistic” view by folks like Buffett, and the price will return to normal at some point.  So, is Buffett kidding us?

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