Any time the business world has the opportunity to hear Warren Buffett discuss the economy, business, and investing, it's a wise idea to listen ... and listen carefully.
In Canada on business concerning one of Berkshire Hathaway's (NYSE: BRK-A ) (NYSE: BRK-B ) subsidiary companies, Buffett recently shared his thoughts about the credit turmoil, Brazil, and, of course, investing.
In describing his thoughts on the credit crunch, Buffett, in typical fashion, borrowed a quote attributed to the likes of Ben Franklin and Albert Einstein that encapsulates the whole situation in a few short words: "Insanity consists of doing the same thing over and over again and expecting a different result."
Of course, this statement applies across the board, not only to the credit crisis. Insanity occurred with tulips centuries ago, then with the Nifty Fifty stocks, the Internet, and now homebuilders and credit markets. You would think after centuries of experience, investors would learn to be very skeptical when markets get overexcited. When the markets start ignoring business fundamentals and begin to focus on irrational optimistic expectations, it's time to leave the party. Did it really make sound business sense to pay billions of dollars for Internet companies with very little revenues?
Keep wishing. Irrationality happened then, it's happening now, and it will happen in the future. Yet patient investors who evaluate businesses, not stocks, will do very well over periods of time. So, yes, we gladly welcome these volatile markets.
You don't even need to be a "professional" investor to cash in on some of the nonsense created by panic. A short while ago, Bank of America (NYSE: BAC ) was being offered for $33 a share, which, with its $2.56 dividend, implied a yield of nearly 8% at that price. The market historically returns 10% a year, and investors had the opportunity to own one of the country's most dominant banks and earn a near-market rate of return from dividends alone. Now, Bank of America is up some 30%, but you can still get a 5.9% dividend yield. Granted, there's been a lot of skepticism on Wall Street about maintaining dividends, but B of A is armed with strong retail operations and enough cash to suggest a very favorable risk/reward profile.
But it's risky environments like our current one that have allowed Buffett to make billions over his career. He was greedy when others were fearful and took advantage of such opportunities as American Express (NYSE: AXP ) during the salad-oil scandal, or Washington Post (NYSE: WPO ) when media companies, much like financials today, were looked at with disdain.
As Buffett quips, among the bargains, there will be casualties from overexcited markets: "I've said in the past, it's only when the tide goes out you see who is swimming naked. Well, the tide is now out, and it's not been a pretty sight."
Getting real with the real
For years now, it's been said, Buffett's "short" on the U.S. dollar. His reasons are straightforward: "...the cause, in my view, of the declining dollar is the current-account deficit, and the trade deficit being the biggest part of that."
Berkshire made billions from its foreign currency bets and has since exited them all, save for one -- the Brazilian real.
Apparently, Buffett still sees some "real" value in Brazil (excuse my pun). He does offer a more practical way for most investors to participate in international currencies, though -- by investing in businesses that generate earnings in other currencies. His favorite example is one of his largest and most successful investments, Coca-Cola (NYSE: KO ) .
The Dow Jones [Industrial] Average started the 20th century at 66 and it ended at 11,400. That is not a bad train to be on. How could anybody lose money on something that went from 66 to 11,400? Well, a lot of people lost a lot of money in stocks because they come in at the wrong time, and they get out at the wrong time, and they buy the wrong things, and they get excited, and they get greedy when others get greedy, and fearful when others get fearful (emphasis added).
Investing is simple, but not easy, according to Buffett, "All you have to do is ride a good asset over a long period of time."
A dose of wise Foolishness: