Erich Riesenberg

Berkshire's Puts: Not Such a Great Idea

I would like to give you $1, so that you too can experience the joy of an infinite ROIC.

Could you return the favor? Thank you.


On Nov 26 02:05 AM najdorf wrote:

> Alex: As has been discussed many times, they're European-style puts,
> exercisable only as expiration. The whole point of the investment
> was that the length of the option prevented any short-term market
> risks. BRK has sold someone an insurance policy against long-term
> stock market depreciation. As always, the company continues to operate
> as a moderately bullish long-term stock-market investor that attempts
> to take short-term volatiiity or risk in order for long-term profits
> in excess of what it will have to pay out in insurance.
>
> Of course BRK could have made more money selling puts today, but
> their invested capital/collateral is zero, meaning as long as stocks
> don't stay low for 20 years whatever profit they make will equal
> an infinite ROIC.

Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries

I understand the desire to be comfortable with everything Buffett, but still, even if these derivatives don't cost Berkshire too much money in absolute terms, isn't the timing of their sale a huge opportunity cost? Woudln't Mr Buffett's reputation be so much better if he were selling this insurance now, at higher prices?

And, I will not have a lot of faith in Buffett until I hear some attempt to explain why he so strongly supported the original Paulson Plan and Paulson. Buffett and Paulson did not even agree on the Plan (Pauslon wanted to pay above market for the assets) and Paulson did not even implement the Plan. Was Buffett wrong or dishonest?

If only CNBC had some hungry journalists who would ask worthwhile questions.

Is Buffett Really Losing His Touch?

The valid question which should be asked of Buffett is whether he was being dishonest or plain wrong when he supported the original bailout plan and Paulson. Has Buffett morphed into a crony capitalist?

2 Noteworthy Points From Warren Buffett's Annual Shareholder Letter

Comparing BRK to PRS is a mistake. BRK has minimal credit default exposure, less than $2 billion in current value and $5 billion in notional value. It is a fraction of BRK's equity. I conclude the opposite, if Buffett saw credit default premiums as a great investment in the second half of 2007, he would have sold more.

And of course, PRS is making unhedged investments, it is impossible to know precisely why BRK is selling credit default protection.