This Berkshire piece illustrates how an investor like Warren Buffett takes advantage of opportunities [emphasis added]:
Berkshire Bought Municipal Bonds Amid Higher Yields (Bloomberg, June 9, 2009, Erik Holm and Jeremy R. Cooke)
Warren Buffett’s Berkshire Hathaway Inc. doubled its municipal-bond holdings in nine months amid record swings in the value of the securities that the billionaire investor labeled “unthinkable.”
Berkshire increased its investment in debt issued by state and local governments to $4.05 billion as of March 31 from $2.05 billion on June 30, 2008, the Omaha, Nebraska-based company said in regulatory filings. Berkshire added $1.09 billion to the bet in last year’s third quarter and $985 million in the first three months of 2009.
Buffett’s firm bought municipal bonds while scaling back stock purchases and as its cash position fell to the lowest level in five years. As Berkshire was adding to the stake, hedge funds, mutual funds and other institutions that use borrowed money to boost returns were forced to sell holdings to meet margin calls and investor withdrawals, especially after Lehman Brothers Holdings Inc. collapsed in September.
…Municipal bonds had their biggest monthly loss of 5.1 percent in September 2008, based on the Municipal Master Index created by Merrill Lynch & Co. in 1989. Issuers put off selling new debt as borrowing costs jumped. Yields on the highest quality 10-year tax-exempt debt soared to a record two times the rate of comparable-maturity U.S. Treasuries in December, according to data compiled by Bloomberg.
…“The investment world has gone from underpricing risk to overpricing it,” Buffett wrote in his annual letter to shareholders in February. “A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds.”…
High quality municipal bonds, investment grade corporates and solid mortgage-backed securities all took hits last fall as the financial panic unfolded. Investors dumped them and fled to Treasury bonds. Now, the bond market is turning back to a more normal evaluation of risk.