Breaking the Back of Buffett

With nearly everyone and their brother lately questioning the investment prowess of Warren Buffett, it looks as though the shorts have finally broken the back of Berkshire Hathaway stock (BRKa).  After riding out most of the credit crisis and actually benefiting from it for awhile, the stock has finally succumbed to the pull of the overall market and broken below $100K for the first time in over two years.  It's amazing how index derivative contracts are coming back to haunt the man who once called them 'financial weapons of mass destruction."

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Comments

[Holy Cow!:]

What's amazing is how clueless many self-proclaimed experts are.
Berkshire's "derivatives" have nothing in common with those that are bringing down so many companies. They are simply long-term bets on the US market which have no impact on Berkshire for a minimum of nine years. If you think the market will be lower nine years from now, then yes, they would have an impact.
And I assure, they are not "haunting" Warren Buffett. You have either never read anything the man has written, or you are intentionally ignoring it. He has said on many occasions that he doesn't know what the market will do next week, next month, or next year. In this particular case, he is only betting that it will be higher in nine years.

2008 Nov 13 02:10 PM

[dwoods55:]

Remember when everyone said Buffett "lost his touch" during the tech bubble?

Me too.

2008 Nov 13 03:35 PM

[muguwmper12:]

Yep, me too. Just for starters...check out a chart of BRK annualized returns in the years following the FEW down years the stock has had. If you don't want to bother looking it up -- let me just say that it has outpaced the market by a huge amount.

2008 Nov 13 04:10 PM

[Michael Dem...:]

Is it just me or does no one understand that these are European exercise puts with 10-15 year expirys that require no collateral posting? So basically you're going to short Berkshire because they hold a security that requires no actual cash transaction for 10-15 years? Good luck.

2008 Nov 13 06:30 PM

[investor88:]

Good points raised in the article and comments. Take Brk.a as a market barometer and follow it for leads on the overall market.

2008 Nov 13 06:45 PM

[helplessobs...:]

Buffet knows we are in a secular bear market that is eight years old. In Oct 07 the first of a cyclical bull market with this secular bear peaked out near 1500 on the SP. Now secular bears, like secular bulls, run 18 to 20 years, so in 2018 a new secular bull will be running and the $4.5B of SP puts will expire worthless. Buffet is writing puts when the premiums are fat. He put part of that premium in either GS or GE at 10% for a cool $500 million year dividend for BRK shareholders.

2008 Nov 13 08:51 PM

[Steven Hansen:]

warren buffett has not lost his touch. his time to buy is now. he is swinging massive amounts of money so depressed markets are really the only time he can play. now is the time he builds his future profits. the time to buy brk.a is when the bulls come out to play.

2008 Nov 14 12:35 AM

[fatpitch2:]

Mr. Buffet is quite a guy ...

I have only one concern about buying BRKB....

Any thoughts on what might happen to BRK shares if he were to leave the company?

2008 Nov 14 10:12 AM

[mollytjm:]

he doesn't really do all the buying anyway...he has powerful and smart people in charge of enormous divisions of investment, including Geico. there would still be a team of top people making the decisions and they all have the same philosophy. the stock is really like a mutual fund with a lot of diversity, but almost everything is in pretty sound companies (part of the philosophy). I doubt he'll leave except in a box, and that could bring the stock down briefly...but BRK sharesholders are passionate and believers, holding that same philosophy and they'll mostly stay and the stock would continue to be strong.

2008 Nov 14 10:34 AM

[missedinv101:]

Other than getting us all to comment on this article, was there any substance in the article? I would agree with most of the comments as they match up with my own analysis of Berkshire, but I derived nothing from the article.

The real news over the last month or so has been the 3 major investments Berkshire has made: 1. GS, 2 GE and finally the CEG deal. These three deals alone are valued at approximately $12-13Billion.

2008 Nov 14 11:23 AM

[kurt walter:]

It doesn't matter, Buffett could lose 99.9% of his money and he still would have plenty to live better than 99.9% of all people in the world.

2008 Nov 14 02:31 PM

[oldgoldbug:]

Warren Buffett is without question the finest long term speculator/investor of our time. He has made massive bets on stocks in (mostly) a rising market environment. He sticks with what he knows and he resists the pull of the crowd to invest when stocks are too expensive.
You have to give someone credit who keeps his powder dry until the odds are in his favor. The deals he cut with GS and GE are quite creative, although the need for such companies to cut deals like these appears to be giving the market real concerns. Short term they may be down, but his positioning for the long term is exemplary.

2008 Nov 16 02:18 AM