Berkshire Hathaway (BRK.A) has released its 2010 annual report. Regular readers know that I am hard on Buffett and that I think he is overrated. [Plus, he sold his silver too early. No greater offense in investing!]
Most recently I wrote a post called "Gary North on Warren Buffett", but I've also written about how Buffett's enthusiasm for Coca-Cola (KO) bothers me.
Anyway, Buffett's letter is full of buy-the-dips enthusiasm and complacency:
Commentators today often talk of “great uncertainty.” But think back, for example, to December 6, 1941, October 18, 1987 and September 10, 2001. No matter how serene today may be, tomorrow is always uncertain.
Buffett manages to cherry-pick some great buying opportunities here. I have a broaderhistorical perspective and I think back to times like April 1930 or 1970 - to say nothing of the aftermath of the South Sea Bubble.
What is odd is that Buffett knows, intellectually, at least, that what I am saying is true:
It’s easy to identify many investment managers with great recent records. But past results, though important, do not suffice when prospective performance is being judged. How the record has been achieved is crucial, as is the manager’s understanding of – and sensitivity to – risk (which in no way should be measured by beta, the choice of too many academics). In respect to the risk criterion, we were looking for someone with a hard-to-evaluate skill: the ability to anticipate the effects of economic scenarios not previously observed.
How about a thirty year bear market beginning in 2000 with more than one 2008-style crash? But even though Buffett is intellectually capable of writing the preceding paragraph, he goes on to implicitly assume that the housing market will be just like the other scenarios recently observed:
A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point.
Well, sure... but not necessarily very soon. The demographics are a nightmare!
By the way, it is disclosed as a risk factor that Buffett has no sell discipline:
You should be fully aware of one attitude Charlie and I share that hurts our financial performance: Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns. We are also very reluctant to sell sub-par businesses as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations.
I can't believe people let him get away with saying this: "regardless of price". There is hardly anything, and certainly nothing in my investment portfolio, that I would not sell for the right price.
One's capital should continually flow to the with opportunities with the best prospective returns, which necessarily means selling some investments to buy others.