Give Buffett Credit: He Tells It Straight 24 comments
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The chatty, folksy annual report of Berkshire Hathaway is out. I have occasionally been a critic of Buffett, but this year, I see little to criticize. In a bad year, he told it straight. He lost more book value in 2008 than any other year in percentage and dollar terms. Worse yet, the market capitalization fell much more.
But guess what? Berky is the biggest financial company in the US, bar none, by a wide margin. Financials have done horribly, Berky less so. Comparing the book value performance of Berky versus the market value of the S&P 500, this was one of Berky’s best years.
Looking at his divisions, insurance, utilities, and other businesses did well, and his investing did horribly, like most of the rest of us. Sure, his timing was bad with some of his preferred stock purchases, and his willingness to write index put options. But if those that Berky invested in survive the crisis, Buffett will come back smiling broadly.
Here’s another pillar of strength. A lot of capital has been destroyed in the insurance industry in the capital markets, reducing surplus. Those that have surplus will benefit. Who is the most ready to write more business? Berky. After that, maybe PartnerRe. Insurance should do well for Berky in the intermediate term.
Though I don’t own it, I find Berky to be intriguing. Who knows, I might finally join the Buffett cult and buy some under $75,000.
PS — Give Buffett credit? I would argue that Berky is cheap relative to other insurance credits. Complexity creates the discount, but the firm is well-managed.
Disclosure: long PRE
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Or perhaps he was only doing that to finance a large margin call on the long-dated index puts he sold.
I fully expect an onslaught of thumbs down for daring to question Warren and his minions, but someone has ask questions like that.
On Mar 01 07:51 PM roy piper wrote:
> Good article, and I agree.
>
> I remember in 1999 Buffett was being called a dinosaur because he
> did not buy tech stocks. BRK went from $70,000 to $40,000. That was
> the last bad year he had. Over the next 9 years, BRK rocked and techs
> languished. Now may be another chance to get in low. Betting against
> Buffett long-term is a fast way to the poorhouse.
n Mar 01 11:11 PM Borscht wrote:
> Clayton Homes has come up recently I don't know where, maybe in his
> annual report. Let's hear the whole story. Let's hear exactly how
> he wrestled Clayton Homes from its true shareholders.
He once said he could make 50% every year if he was not constrained by size. This is impossible and implies that he has some devious inside track on the market.
If I said I could make 50% a year in a fund you'd call me a fraud. Even if I did it for two years you'd still say I was doing something illegal.
But Buffett can say this and attract money to his stock. He announces that he could make 50% if he could invest anyway he wants. People hear this bullshit and put money into BRK.
People should be warned, Buffett should be told to shut up. Anybody investing on Warren's word should think again.
On Mar 01 07:32 PM Amouna wrote:
> Can't compare those monkeys on Wall Street to the guy who has been
> investing in Fortune 500 companies well before investment banking
> came into birth! Buffett is the grand daddy of value investing and
> a master at that, even in a horrible year like 2008
On Mar 01 07:32 PM Amouna wrote:
> Can't compare those monkeys on Wall Street to the guy who has been
> investing in Fortune 500 companies well before investment banking
> came into birth! Buffett is the grand daddy of value investing and
> a master at that, even in a horrible year like 2008
On Mar 01 07:32 PM Amouna wrote:
> Can't compare those monkeys on Wall Street to the guy who has been
> investing in Fortune 500 companies well before investment banking
> came into birth! Buffett is the grand daddy of value investing and
> a master at that, even in a horrible year like 2008
On Mar 01 10:39 PM Borscht wrote:
> He's a sleazy prick who will feed you a t-bone steak while he knifes
> you in the back. Why do we villify bankers and insurance executives
> while we give Buffett a free pass? Follow the money and it has all
> been going to Warren these last fifty years.
On Mar 02 09:31 AM The Mad Hedge Fund Trader wrote:
> PP Uf d “If you have been playing poker for a half an hour, and you
> don’t know who the patsy is, it’s you,” said Warren Buffet.
> I fully expect an onslaught of thumbs down for daring to question
> Warren and his minions, but someone has ask questions like that.
How about some thumbs down for not knowing the facts before commenting?
> Is anyone upset that while St. Warren was out there getting a sweet
> deal on GS and buying up ad space in papers
Didn't buy an inch. Wrote a letter published in the New York Times. Didn't even use his own Washington Post (BRK 20% owner) for it.
>begging American investors
> to buy stocks that he was at the same time dumping large chunks of
> his holdings?
Geez, read the letter. BRK bought what, $15B of debt from GS and GE? And so, to keep a nice fat amount of cash, liquidated some solid value equities. What's your problem with that?
> Or perhaps he was only doing that to finance a large margin call
> on the long-dated index puts he sold.
Sigh. In the letter he clearly states that BRK wouldn't have done these deals if they had to put up any equity whatsoever. But don't let facts get in the way of a good whine.
If you checked the CDS market last week, it was cheaper to insure $1,000,000 of debt issued by the Republic of Vietnam than insuring the same amount of money from BRK.
The fundamental engine of the company is the insurance "float" or premiums they've received from other people's policies, be they cars (GEICO) reinsurance (General Re) or a regular insurer that Berkshire Hathaway controls - it's 58 billion dollars. BRK shrank by 11.8 billion dollars. I feel bad the author bought shares in BRK now that they are at $70,000 but they have farther to fall. The insurer units are made up with corporate bonds and as asset prices have fallen, so do the bonds. If you thought and imagined how much money the Berkshire Hathway insurers lost on the Big 3 automakers, or bank bonds, you name it, it lost value and defaults are up, The float dries up and the boat sinks. You think See's Candies or that 20% in Moody's is worth anything? All the non-insurance related companies provide a mere fraction of the insurance companies and they didn't do great either. I
That's what I take from his annual letter - not just that he is owning up to bad bets and laying out the losses on the books - rather, BRK is not positioned well for any sustained downturn,
Market participants take notice when your total net asset value of securities equals your total net asset cost of securities.
Saying that derivatives are weapons of mass destruction and getting involved in European style contracts is hypocritical, and foolish. He took those premiums and bought COP at 85. Whatever gains from that transaction have been squandered and all there is left is downside, hoping things turn right by the end of the contract. The only reason he entered into the contract is that there is a 100% chance that he will not be alive when they expire and therefore he won't have to acknowledge the depth of miscalculation.