The Amazingly Insightful Berkshire Boys

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I guess it shouldn't come as a surprise that the Berkshire Boys, Warren Buffett and Charlie Munger, saw the housing mess coming before the rest of us had cottoned to it. Indeed, their amazing prescience may be the biggest reason why Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has been such a tremendous year-in and year-out success.

Back in May 2005, before the now-raging housing mess had become apparent, the pair discussed the subject during a question-and-answer session at Berkshire's annual meeting. As Buffett said, "Certainly at the high end of the real estate market ... you've seen extraordinary movement ... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."

Clearly, the bulging cost-price imbalance that Buffett referred to was the death knell for housing economics as we've known them. As long as prices were outrunning costs, even predatory lending to folks who shouldn't even have been able to finance dollhouses wasn't a problem.

But when the music stopped and prices began to retreat back to the level of costs, all manner of mortgagees, mortgagers, or speculators were in trouble. They quickly discovered that they'd walked off a cliff, but were still trudging along, with no support beneath them.

So, because I, too, like to invest in solid companies in areas I understand, given Warren's demonstrated wisdom, I'm inclined to consider carefully the names the oracle finds attractive, especially because you can copy Warren Buffett and beat the pros. Take a look at some of his current investments:

• The rails. Much has been made of Berkshire's big positions in railroads Burlington Northern Santa Fe (NYSE: BNI), Norfolk Southern (NYSE: NSC), and Union Pacific (NYSE: UNP). Given a world in which diesel prices are inching up by the day, and where shipping to the U.S. West Coast from all around the world also is on the rise, Berkshire's attention to the rails makes awfully good sense.
• Procter & Gamble (NYSE: PG). This is the consummate large-cap manufacturer of health and beauty products, an area that also makes terrific sense amid today's rollercoaster market.
• Coke time. Berkshire is a major holder of Coca-Cola (NYSE: KO), whose board of directors also includes a Mr. W. Buffett. I like that name for its international presence; besides, it'd take an awfully deep recession for folks to stop guzzling their Cokes.

Yes, the Berkshire Boys are amazingly forward-thinking. It therefore seems sensible to monitor the thinking at their company as closely as possible, even if one chooses to cast one's investment fortune elsewhere.

For related Foolishness:

• The Optimistic Prediction of Warren Buffett
• Is Buffett Right About Gambling?
• Buffett's Words of Wisdom

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