Is Buffett the Biggest Bubble of All?

Has Warren Buffett just been lucky all these years? 

It feels like sacrilege, but in light of recent events, I have to ask the question. After all ...

  • His company, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , has reported $10 billion in writedowns on its equity put options -- i.e., derivatives.
  • His hefty positions in financial stocks, including Wells Fargo (NYSE: WFC  ) , US Bancorp, and American Express (NYSE: AXP  ) , have been absolutely throttled in this banking crisis.
  • He loaded up on shares of oil titan ConocoPhillips at the height of the oil bubble last summer -- a mistake for which he expresses regret in his letter to shareholders.

I'm not the only one questioning the Oracle of Omaha's investing prowess. One of the ratings agencies took away Berkshire's pristine AAA debt rating. The price of Berkshire credit-default swaps (which are basically insurance against Berkshire defaulting) is at levels more usually found with companies rated as junk. And finally, shares of Buffett's holding company are trading at half of last fall's prices.

So is it time to conclude that Buffett's investing legend has been nothing more than extreme luck and excessive risk-taking -- the ultimate bubble waiting to pop?

Luck or strategy?
Buffett's entrance into derivatives, which he famously described as "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal," might lead you to believe he's both hypocritical and risk-happy.

After all, since he made that claim in 2002, Berkshire has participated in four types of derivatives contracts, including taking $4.9 billion to write $37.1 billion worth of equity put options.

Still, believe it or not, Buffett's not being hypocritical, he's not being overly risky, and he hasn't made terrible deals.

Unlike many investors (and investment banks), he uses derivatives very carefully. In the equity puts, for example, Buffett has bet that stock markets in the U.S., Europe, and Japan won't utterly collapse over the long term. He gets the $4.9 billion up front, and he has to pay up only if the markets are lower when the various contracts expire between 2019 and 2028. But under mark-to-market accounting, he has to record those bets as losses because of the short-term plunge of the worldwide stock markets.

Buffett prices and monitors each contract himself. There are certainly risks involved, but those risks aren't as dramatic as they seem. In the case of the $37.1 billion in equity put exposure, world markets would have to fall to zero for Berkshire to pay out the full amount -- and the markets have between a decade and two decades to make up the $10 billion in paper losses. In the meantime, Buffett gets to invest and grow the $4.9 billion in premiums.

Anyone who considers these long-term bets on the stock market "too risky" should steer clear not just of Berkshire Hathaway, but of the stock market in general.

What about his shoddy investments?
It's true that Buffett has taken some investing hits lately. His exposure to the banks, and his ill-timed purchases of ConocoPhillips, led to Berkshire Hathaway's worst-ever annual performance. Its per-share book value dropped 9.6% in 2008.

The carnage so far this year has likely continued that drop in book value, but remember that investing in the stock of public companies is only one facet of Berkshire's operations. It also includes the core insurance business (including GEICO and its reinsurance businesses), its other subsidiaries like its utilities and Dairy Queen, and Buffett's aforementioned derivatives contracts.

Many of Buffett's stock positions are much worse off than they were just months ago, but it's worth noting that Berkshire's own stock-price drop has more than priced in these missteps. Furthermore, Buffett has been doubted often in his nearly half-century at the helm of Berkshire Hathaway -- you'll recall the assertions during the tech bubble that Buffett's investing style was obsolete -- only to be proven right time and time again.

Any risk in the rest of the business?
None of the concerns we've already discussed bother me. I'm not worried about his derivatives, I'm not worried about his exposure to financials, and I certainly don't think Buffett's lost his investing acumen.

But looking at the company as a whole, two things do bother me.

The first is Berkshire's reinsurance business. Quite simply, Buffett and his trusted associates are in the business of pricing catastrophic events, which feature "very large transactions, incredible speed of execution, and a willingness to quote on policies that leave others scratching their heads."

Yes, Berkshire pools this risk and generates very attractive rates for it, but a few mistakes could blow the whole operation. Just like GE Capital has crippled General Electric (NYSE: GE  ) , adverse events in Berkshire's insurance operations could take down the whole conglomerate.

The second problem is that, contrary to the hype, Buffett is mortal. Even more so than Steve Jobs at Apple (Nasdaq: AAPL  ) , Buffett is Berkshire Hathaway. It may not seem like it at these prices, but there is a considerable premium baked into Berkshire stock because he's the one running it.

So is Berkshire a sell ... or a buy?
If this financial meltdown has taught me anything, it's that we should question everything and everyone -- even our heroes. All that said, I still believe in Buffett.

Buffett remains the greatest allocator of capital on this planet, and he's getting some great opportunities thrown his way. Down-on-their-luck companies from Goldman Sachs (NYSE: GS  ) to GE to Harley-Davidson have sought his financial help and reputation, at very, very favorable terms.

There is plenty of risk in Berkshire stock, but at current prices, I believe that Berkshire Hathaway is worth the risk. In fact, the recent price drops convinced me to put my money where my mouth is -- I recently bought Berkshire Hathaway stock.

The analysts at our Motley Fool Inside Value newsletter are also big fans of Buffett, his philosophies, and his company. They apply his value investing principles to find the best companies trading at discounts to their intrinsic values. I invite you to take a free peek at what they're recommending with a 30-day trial. If you're not impressed, there's no obligation to subscribe.

Anand Chokkavelu owns shares of Apple, Harley-Davidson, and Berkshire Hathaway. He is also a big fan of Dairy Queen chili dogs. American Express and Berkshire Hathaway are Motley Fool Inside Value recommendations. Apple and Berkshire Hathaway are Motley Fool Stock Advisor picks. US Bancorp is a former Income Investor choice. The Fool owns shares of American Express and Berkshire Hathaway. The Fool has a disclosure policy.

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  • Report this Comment On March 16, 2009, at 4:51 PM, FOOLBEFREE wrote:

    I recently bought more Berkshire Hathaway stock !!. I first bought about 2 months ago.

    This crisis, like many others, shall pass. The US has the magic of recovering, it always does. Be patient. At this low price, it is very hard to lose in you keep it for 5-10 years.

  • Report this Comment On March 16, 2009, at 4:53 PM, docdevious wrote:

    quick question...what does the counterparty get for the next ten years while Buffett enjoys the use of several billion dollars?

  • Report this Comment On March 16, 2009, at 5:04 PM, Gadzmo wrote:

    The counterparty gets to hang onto steadily declining PUT options. Whoever is betting against Buffett with these is going to be sorely disappointed when they come due.

  • Report this Comment On March 16, 2009, at 5:06 PM, bwac wrote:

    Buffet is an old man, and we should have no illusions about old folks' intellectual decline. It happens. I'm 76 and very aware of the gradual loss of cognitive ability that we all have to accept. I do not trust anyone my age to give any kind of advice that requires intellect. The best we can do is try to be socially acceptable and not do anything really stupid.

  • Report this Comment On March 16, 2009, at 5:11 PM, p5tt12 wrote:

    i have owned bershire since it was 1500(b shares) and bought at 2400 for my kids. for me to sell i would have to conclude i know more than buffet--i do not . i will not sell.

  • Report this Comment On March 16, 2009, at 5:12 PM, p5tt12 wrote:

    people age differently

  • Report this Comment On March 16, 2009, at 5:17 PM, usrads wrote:

    Just as Mr. Buffett would prudently hedge his risk, someone purchasing Berkshire stock might consider buying an insurance policy on Mr. Buffett. There is too much of a "Buffett premium" baked into the stock price. If he is hit by a bus, the stock could be adversely impacted. He probably would applaud such risk management

  • Report this Comment On March 16, 2009, at 5:28 PM, EggplantWizard wrote:

    Several of you are presuming that the counterparty is motivated by actually making money on the put options, rather than hedging their paper losses in a declining market.

    This is a terrible management strategy in almost all cases, but the way managers are incentivised, and the way investors often view companies, this seems like a likely motive for Buffett's counterparty.

  • Report this Comment On March 16, 2009, at 5:51 PM, harrymax wrote:

    I don't know how many BKA someone could actually buy at $81,500 a share. I am beginning to wonder if anyone knows what they are doing.

    If the Motley Fool suddenly wonders about Warren Buffett's cred, after having treated him like God all this time, then I wonder who I can believe in. This all sounds more like religion or magic than reality.

    I think you are going to make money in this country I think you have to have insider fraudulent information. Otherwize its all a voodoo. Buffett, Motley, Wall Street....take your pick of bubble makers. I am looking to make slow money, the old fashioned way.

  • Report this Comment On March 16, 2009, at 6:02 PM, colleran wrote:

    I am sure I am in the minority here, but I think that investing is mostly luck. When it comes to luck, there will always be people who will do much better than others, even over time. It is not just that I am a contrarian investor, but I am just a contrarian.

  • Report this Comment On March 16, 2009, at 6:18 PM, Snertie wrote:

    I think he's been spending too much time in the echo chamber. For the last year or so, he's been even more of a media darling because of his endorsement of Obama, and his contrarian positions on taxes and the wealthy. He may be starting to believe their hype, and that's usually fatal to one's wisdom and objectivity.

  • Report this Comment On March 16, 2009, at 6:25 PM, JibJabs wrote:

    For all the haters of Buffett- judge him on his own terms. The long term. Get back to us in a decade.

  • Report this Comment On March 16, 2009, at 6:29 PM, knighttof3 wrote:

    Doesn't BRK have something like 20% CAGR over 40 years? There's no one even close. Yes even titans can fall but looking at his recent actions, IMHO, he is far from "fallen and can't get up" :-)

  • Report this Comment On March 16, 2009, at 6:37 PM, sailrmac wrote:

    I think of BRK-A like a non-diversified, value oreinted, closed-end fund with a very talented portfolio manager.

    No matter how talented the manager or how long that fund has traded at a premium, I don't believe it is worth it to pay a premium to NAV.

  • Report this Comment On March 16, 2009, at 7:23 PM, horacekgl wrote:

    Thank you. Thank you. If history is any guide, the bottom is in or certainly very near. When we start seeing 'Buffet doesn't get tech' type articles and questions again from people we expect to know better, well history has not been kind to the doubters. While Buffet personally may be a bit of a socialist, he's all capitalistic when it comes to his shareholders.

  • Report this Comment On March 16, 2009, at 9:25 PM, trenton1ryan wrote:

    < Get back to us in a decade>

    Buffett will be dead in a decade, and so will Charlie Munger. Who will you pray to then??

    Better to do your own homework and decide for yourself. I wouldn't want to be holding BRK stock when they go.

    Don't mean to be too morbid for you candyhearts, but imo, you should learn to think for yourselves.

  • Report this Comment On March 16, 2009, at 9:29 PM, sunshinexxx wrote:

    i have no doubt Warren Buffet's BRK will recover. I recently bought more Berkshire Hathaway stock too.

    Someone commented above:

    "This crisis, like many others, shall pass. The US has the magic of recovering, it always does. Be patient." I see $100K on the horizen very soon!

  • Report this Comment On March 16, 2009, at 10:14 PM, concan2 wrote:

    I harbor a good deal of respect for Mr Buffet and his Berkshire Hathaway and anticipate the same in the long run. What about BRK B?

  • Report this Comment On March 16, 2009, at 10:21 PM, JibJabs wrote:

    "Don't mean to be too morbid for you candyhearts, but imo, you should learn to think for yourselves."

    I am a novice and a student of the markets. I wish to learn from the masters (which certainly includes Buffett, who, incidentally, I do not pray to). What is your method?

  • Report this Comment On March 16, 2009, at 11:58 PM, rbadri2 wrote:

    What are the fundamentals of Buffet's empire? Sincere CEOs, low debt, and consistent returns. Fundamentals have not changed.

  • Report this Comment On March 17, 2009, at 12:07 AM, trenton1ryan wrote:

    Read, read, read... You must commit yourself to researching and learning on your own. Blindly following others-no matter how good their track record HAS been.

    I am no master sir. In the 4 years I've been investing, I've lost more than I've gained, so I certainly don't hold a candle to Mr. Buffett. As things started to crumble last spring, I decided to move all my retirement out of stocks (in May) and put it in a stable value account. I only lost 12% last year-probably the most intelligent (and prescient) investing decision of my life. However, in opening my first IRA this Jan, I've only stocked it with MLPs-pipeline stocks that collect a fee for others using their miles of pipeline. They pay 8-10% divvies, and with oil and ng near lows (imo), I'm slowly buying shares of a few of these MLPs as I believe we aren't going to see sustained growth in the U.S. for as much as a decade, and the Dow is nowheresville for the foreseeable future.

    I read the MF articles for the comments mostly, as those commenting are much more astute in their observations and much more willing to call a spade a spade. I've learned much more from those posting comments than the those writing the articles. Steve Ballymer was quoted as saying that "we're seeing an entire economic reset". I say he's right. We don't know what the new rules are going to be, but my bet is that it will go from the imaginary (banks) to the tangible (energy, agriculture). Until things begin to flesh themselves out, I don't see any point to jumping back into the Dow, etc.

    Watch for what type (and how much) regulation is to be the new norm for banks and the like. Also, commercial RE and CC default have yet to hit the fan, as well as upcoming ARM resets. Still a long ways to go here imo...

  • Report this Comment On March 17, 2009, at 12:13 AM, trenton1ryan wrote:

    <Blindly following others-no matter how good their track record HAS been>

    should finish: is sheep behavior. Sheep eventually get slaughtered and you're at the mercy of someone else's decisions. Why would you want to trust anyone that much (esp with your $)??

  • Report this Comment On March 17, 2009, at 12:21 AM, monologo wrote:

    Why is Buffett different...? He is honest.

  • Report this Comment On March 17, 2009, at 3:53 AM, threepennybit wrote:

    The guy that posted further up has it right, only insider trading makes one rich. The rest of us are there to be slowly bled. How come Buffett and Schwarzmann of Blackstone Group are multi billionaires? Whose money have they taken? Yours.

  • Report this Comment On March 17, 2009, at 7:47 AM, sjnsvcs wrote:

    Again....Nobody can argue with his past successes, BUT.....what happens when you take the man off the paper???

    Look what hapened to Apple when Steve Jobs announced a 6 mo. medical leave......I would like to have a share or 2 of BRK in my IRA because I believe it is severely undervalued, but I'm not ready to take on the risk of where things go when WB steps down.

  • Report this Comment On March 17, 2009, at 10:42 AM, benoved wrote:

    Pls enlighten me regarding the "derivatives contracts - taking $4.9 billion to write $37.1 billion worth of equity put options": who is on the other side of the deal and for them is it a pure bet (as for Buffett) or is a kind of hedge (meaning they have positions related to these specific events which they want to protect)?

    My quiriosity stems from the fact that certain derivatives (CDS for instance) started as "legitiate" hedge positions and turned in a huge balloon of bets. I believe that these pure bets have to be controlled, such as CDS for real position in the paper. To bet go to Vegas!

  • Report this Comment On March 17, 2009, at 11:04 AM, usnafather wrote:

    I've been reading all these comments and believe one should give Buffett the benefit of the doubt regarding his passing, and how BRK is run after he goes. One can say with certainty that his time is coming, and one can say with certainty his success is unquestionable, So with that in mind, why would you question his ability to have in place someone as bright or even brighter than he is? Don't most good Corporations have in place successors to the "King" so to speak? I'm now in the process of evaluating where to put our retirement money, it's not much compared to the amounts I've read others have to invest. But it's over 300k in cash, not counting what we own. I can't find a single more secure place to put my/our money than BRK-A,BRK-B!! Where else is there to put your funds with such a track record as Berkshire Hathaway?? and I'm not sure which of the two BRK'S are the right ones to invest in, A or B?? I've got about 7-10 years to let it build up? I'm asking these questions because I want to learn what others are doing/thinking. The world is full of salesmen of one kind or another, just give me a good ole hard working knowledgeable investors opinion. I just wish I could be privelidged enough to have inside information of any value. Thanks for your time.

  • Report this Comment On March 17, 2009, at 11:14 AM, jfv2525 wrote:

    I noted several posters have put money in their IRAs. Has anyone ever considered that it might only make sense if you KNOW you will be in a lower tax bracket when you begin withdrawals? Remember, taxes are DEFERRED, not exempt. Further, any capital gains you make will be treated as ordinary income and taxed at that rate, not the prevailing capital gains rate. Do the math using a static tax rate. It is at best a zero sum game. Also, it's not a bad bet that your taxes will actually be higher when you retire.

    I am not an insurance salesman, but over-funded contracts may be a better bet. When it comes time to withdraw money the tax code first recognizes those withdrawals as a return of premium and does not tax them. When that is exhausted, you take out loans against the rest which offset against the death benefit at time of death and the whole thing goes away. You pay NO taxes. I think it's a decent vehicle for the fixed portion of your portfolio. If you are shooting for appreciation and capital gains, at least put it where you can take advantage of the lower tax rate for capital gains instead of having it treated like ordinary income. JMHO.

  • Report this Comment On March 17, 2009, at 1:38 PM, Stillwaitng wrote:

    I guess I would think about investing in BRK A (or B, depending on one's capital) the day after Mr Buffet decides he will pay me a dividend to do so. Since he refuses currently, it just makes more sense to me to give my money for ownership in companies that do.

  • Report this Comment On March 17, 2009, at 1:56 PM, bermuda999 wrote:

    "Several of you are presuming that the counterparty is motivated by actually making money on the put options, rather than hedging their paper losses in a declining market.

    This is a terrible management strategy in almost all cases, but the way managers are incentivised, and the way investors often view companies, this seems like a likely motive for Buffett's counterparty."

    Actually, I believe you are partially correct. Yes, they're not actually trying to make money on the put options. But, in all likelyhood the counterparties are prudent insurance companies and/or investment companies that are selling a guaranteed return-of-capital type investment. They sell these investments as very safe, since you are guaranteed to get your money back (in say 15 years) though matter what the market does. If the market goes up enough, you get to participate somewhat on the upside (they keep some, you get some), and you will never lose money. They could have sold you these investments using the same kind of accounting as AIG or Bear Stearns did when they sold the swaps, where they just hope for the best but first little market hiccup and they're insolvent. Instead they hedged the potential losses by purchasing these long dated puts from Berkshire. They expect the market to rise over the next decade or so, and they will make money on keeping a good portion of the market returns from the premiums invested from these investments, but worst case scenario they only lose the premium amount they paid to Berkshire. Nobody is betting Buffet billions of dollars expecting the markets to be lower a decade from now. They're just being prudent. Wouldn't it be nice if all the banks/insurance companies acted this way.

  • Report this Comment On March 17, 2009, at 2:14 PM, mikecart1 wrote:

    I am posting here to document myself in history that I support Buffet 100% and although I think his rise to fame has a little luck, a little luck never hurt nobody. I'd rather be lucky than good.

    In the end, I LOL 1, 2, 5 years from now when Buffet is richer than ever and every hater here gets put back in their place.


  • Report this Comment On March 17, 2009, at 4:13 PM, nwind wrote:

    Hi there.

    I'm pretty stunned by many of you Americans whom I love for the most part.

    I learn from many smart successful Americans.

    I'm from socialist Canada (Toronto ) or San Francisco lite) and I see what socialism or really all the off shoots of socialism has done or is doing to this once florishing city.It's loosing it's tax base. Many 6 figure folks and business's are leaving to go out side of our mayor 's ( Obama lite) tax boundries.

    I almost feel as if I should apoligize to you who are socialist, entitlement mindset because I have had the odasity to become more successful by studying ,learning and implementing ideas I have learned from Kyosaki and some other online folks who became wealthy because they learned financial literacy as have I and my wife has also done.

    We parked our car, stopped doing certain things temporaryily and went to work learning new strategies to rebuild.

    We don't come from money.We come from a G.M. family.Mostly socialists and union folks.The ones who said "get a secure job Nicholas"

    Why are some of you so mad at the "rich" ?

    Get off of your scarcity mind set and get smarter and more financially literate.

    What we are seeing online is many people creating wealth as we are starting towards it ourselves.

    Is it easy ? no

    Learn from the wealthy folks.Most of them contrary to main stream media and our school system are wealthy because they work harder than most.

    Most will also help you if you ask.

    I'm one of them who works harder and smarter by listening to methods that are proven over time.Common sense mostly.

    It's the information age folks.Go learn and stop waiting for the goverment to "help you".

    Just for the record I believe you folks down south are in for a HUGE government programs and redistribution of the achievers money.

    That's why I am still stunned at the ignorance of Obama voters.

    .I like Ron Paul and his smaller government ideas.

    Obama voters my be the most ignorant voters I've ever seen.

    I learned and continue to learn about wealth creation online and will be back to 6 figures again one day.

    Am I lucky ?

    Yes I am lucky I did not listen to you socialists or your ilke.

    The only thing I was given was great health.Now that's a lot to be given.

    Here's some food for thought.I hope you Obama voters will read below and maybe think a bit for once.

    Your new president likes this guy too.

    Lincoln's Ten Guidelines by which he lived

    1. You cannot bring about prosperity by discouraging thrift.

    2. You cannot help small men by tearing down big men.

    3. You cannot strengthen the weak by weakening the strong.

    4. You cannot lift the wage earner by pulling down the wage payer.

    5. You cannot help the poor by destroying the rich.

    6. You cannot keep out of trouble by spending more than your income.

    7. You cannot further the brotherhood of men by inciting class hatred.

    8. You cannot establish security on borrowed money.

    9. You cannot build character and courage by taking away man's initiative and independence.

    10. You cannot help men permanently by doing for them what they could and should do for themselves.


  • Report this Comment On March 17, 2009, at 9:13 PM, rtek2056 wrote:

    If people think W.B is old what do they think about Charlie Munger who is one of the board members? He is well into his eighties and W.B. always said that when he dies and people view him laid out, he would like them to comment, "man was he old"!

  • Report this Comment On March 18, 2009, at 9:05 AM, Celtics17 wrote:

    Great post, nwind - I'm right with you!

    Romney-Paul 2012!

  • Report this Comment On March 19, 2009, at 2:50 PM, wuff3t wrote:

    "Buffet is an old man, and we should have no illusions about old folks' intellectual decline. It happens. I'm 76 and very aware of the gradual loss of cognitive ability that we all have to accept. I do not trust anyone my age to give any kind of advice that requires intellect. The best we can do is try to be socially acceptable and not do anything really stupid."

    cummiw, I hope your comment was intended to be ironic? You offer advice ("The best we can do is...") right after stating that you are intellectually capable of giving advice?!

    I have to say I find that sort of attitude disappointing anyway. To assume that someone of 78 years of age and a pretty much unrivalled level of investing experience should be written off is, in my humble (but relatively youthful...:-)) opinion, short-sighted. Does intellect decline with age? For some yes, for others maybe not so much. To assume that we all learn and decline at the same rates is just wrong. And wisdom, I'm told, increases with age.

  • Report this Comment On March 20, 2009, at 12:33 PM, G880nions wrote:

    wow another article on

  • Report this Comment On March 20, 2009, at 5:21 PM, rodby wrote:

    Your comments about the insurance risk shows a fundamental misunderstanding about the business.

    ALL reinsurers have established retrocession agreements to spread the risk, and this is ESPECIALLY true with cat cover.

    Sure, there could be significant losses, but no reinsurer EVER bets the farm on a single class of business.

  • Report this Comment On March 21, 2009, at 12:19 AM, zversyp wrote:

    I enjoyed this post, as well as the other posts like it:

    "Just as Mr. Buffett would prudently hedge his risk, someone purchasing Berkshire stock might consider buying an insurance policy on Mr. Buffett. There is too much of a "Buffett premium" baked into the stock price. If he is hit by a bus, the stock could be adversely impacted. He probably would applaud such risk management"

    Seriously? Did you really post that? Really?

    Buffett himself has used the "suppose I got hit by a bus" analogy in his annual letters to his shareholders several times. That's almost a direct quote. Immediately afterward he has repeatedly stated that his replacement is already in line, and he is fully confident in their ability to take Berkshire to new highs. As for him applauding taking a hedging position against his death, he would definitely NOT applaud that move, since the money could be better spent buying Berkshire stock, since he has said several times: "The day I die, buy Berkshire stock." Yes, the stock will drop when he dies. That day will be the most undervalued you're going to get Berkshire.

  • Report this Comment On March 23, 2009, at 8:17 AM, savvy09 wrote:

    nwind from Canada, this comment is for you

    I'm 25, who is projected to hit a million by January 2010, who is from the South and voted for Obama....

    And you are...................

  • Report this Comment On March 23, 2009, at 12:59 PM, mansiz wrote:

    im a chinese...

    i beleive in warren...

    not because he is always right...

    but because he is the one who mostly close to the truth...

    american people should be glad to buying the cheap bershire stock...thats too easy to make moneys...though make money shouldnt be the purple of buying stock...

    i bought bershire too...however, chinese is illegal to buy laws...

    good luck!!! warren's fans!!!

    wish a day, china will have a warren, too

  • Report this Comment On March 23, 2009, at 3:15 PM, PennyPincher12 wrote:

    lol @ this.

    first sentence is pure comedy.

    Warren is a good investor who makes good long-term results for himself and shareholders.

    One bad year is silly.

    Go look at the results of the Superinvestors of Graham-Doddsville. Some of them had multiple terrible years, -30%, -25%, -40%... But still returned a heck of a lot more than the S&P over the same time.

    This is a shortsighted opinion.

    He was also supposedly "lost it", when he ignored the roaring NASDAQ stocks in the late 90s.

  • Report this Comment On March 23, 2009, at 5:03 PM, FLORIEPOWER wrote:



  • Report this Comment On March 26, 2009, at 5:45 PM, chemdude47 wrote:

    It saddened me to see cummiw write what (s)he did about self. Maybe you are not as fast in your analytical ability, but are you any less thorough? But at 76, maybe Berkshire is not the place to be invested just because of age.

    And I agree with those writing that a bad year does not make Buffett an idiot. Seems I also recall that John Wooden's Bruins did not win the national championship every year, too.

  • Report this Comment On March 27, 2009, at 12:00 AM, cautiouswillie wrote:

    Some say Warren Buffett was lucky. That reminds me of old-time golfer Gary Player, who had many battles with Arnold Palmer and Jack Nicklaus, beating them in several majors. One day, as he sank a long putt, a voice from the gallery floated out: "That was just a lucky shot!"

    Player turned around, locate the person and said with a smile, "You know, you're right. That was a lucky shot. But the funny thing is, the more I practice, the luckier I get!"

    The more homework WEB does, the more he hones in investment skills, the luckier he gets. Delivering 20% per year AFTER making self-admitted blunders is all the proof you need.

    Luck... right.

  • Report this Comment On March 30, 2009, at 12:23 PM, pwnvds wrote:

    Buffett always seems to be a topic of controversy. Whenever the stock drops, or Buffett makes decisions against the mainstream, despite the fact that BRK is still way ahead of the indexes over the past few years, the masses chant about his impending demise.

    First of all, let's assume that some of you are right - that he is beyond his years, he's losing his touch, and making poor decisions. Let's pair that with the fact that his days are numbered. If you believe this, you should be hoping he passes away, because someone younger and perhaps more astute is likely to take the reigns, and could unlock potential in a company with a ton of excess cash. Thus, the premium would get replaced with actual growth.

    Regardless, honestly, I believe that people that say he's making poor decisions don't bother to actually delve into the financials of this company, or don't seem to understand how much more transparent Buffett is than any of his peers, in companies or in funds. When Buffett passes, everyone expects the stock to drop. So what? As Buffett himself says, the day he dies is going to be the best day to buy BRK. Whether or not you believe his successor is going to do better or worse than he is doing, the premium will likely get erased, but yet the company will still have the same fundamentals it had the day before. Eventually, common sense will prevail and the continued growth of the company will put upward pressure on the stock price.

    Plus, think about how many investors are poised to buy BRK when Buffett dies. Imagine the scenario: Monday morning, news release that Buffett has been hit by a bus. Monday afternoon, BRK drops 10%. Tuesday afternoon, BRK drops 5%. Wednesday afternoon, BRK up 20% on very high volume. It's very possible and even likely, even if it takes 3 months instead of 3 days.

    This is a solid company based on principles and transparency far more substantial than most companies or mutual funds. BRK has a premium not because Buffett is some sort of God but because he has continued to position his company for growth, and in the current market has made several key moves that will pay off extremely well in the long run. Premiums on stock prices often result from the expected growth of companies. And BRK has continued to grow.

    This is not about past performance, faith, or praying to Buffett. It's about a company that is well positioned for growth, has weathered the economic environment very well, and has invested cash in a down market very astutely. The company still has a great cash position. How many other companies can say that? It also has a great insurance business that's poised for continued growth and good profitability. Compared to other large companies and even mutual funds, BRK is in much, much better shape.

    The comment about dividends misses the point - Buffett doesn't pay dividends because he wants to keep the cash for investing. This is a critical part of his strategy. Essentially, the growth of the stock should exceed the yield of a dividend (which it has, basically), and allows investors to defer the tax on that growth. Also, the complaints about the derivatives contracts are absurd. Buffett got $4 billion to invest and has very little chance of having to pay anything substantial on those contracts. The mark to market losses are essentially meaningless and interpreting that as a mistake for BRK is short sighted.

    Keep in mind that this is a long term buy. It's an investors stock, not a day traders stock. If you are looking to make huge returns quickly, look elsewhere, perhaps buy GM, GE, GLBL, C - if you're willing to take the risk. If you're looking for a relatively secure place to put your money, and grow it over time, this is probably it.

    The problem is that most investors seem to have a one year horizon, while Buffett has a 10-20 year horizon. He makes key long term decisions that other manager are unwilling or unable to do.

    The more I read people's comments and even articles by supposedly learned people, the more I realize how pathetically ignorant and short sighted investors are -- and not just the average investor, most supposedly informed investors. Anyone who bothers to learn about history should read the articles about Buffett from the dotcom era.

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