najdorf

On Buffett-Back Riding

Artful Dodger: You're simply wrong about Buffett's stock selections. First of all, he was nothing but a stockpicker in his early days when he achieved returns in the high 20% range. Secondly, take a look at the table on page 15 of www.berkshirehathaway..... I realize that it's not up to date, but I think it pretty effectively makes the point that Buffett has done very well with some stock selections: Washington Post, Coke, and AXP/WFC if they ever come back (doing better than other financials anyhow - we'll see). He made a great medium-term trade in PetroChina a few years back. He started in GEICO as a stock investor, although he eventually made it a fully-owned BRK company. He played FNM/FRE very intelligently and got out at the right time. Of course everything he's bought in the last couple years is down, when every stock is down, but that doesn't mean stock picks haven't been effective. Think about the investments that 20 years of Coke dividends have funded.

More importantly, I can't think of a major Buffett stock holding that has totally blown up. He has achieved the returns without taking big risks. Anybody can buy a basket of pharmaceuticals with drugs in testing or trade tech startups during the bubble and possibly get lucky - but they're going to also lose big chunks of money at times. Buffett hasn't picked positions that lost big sums of money.

4 Unbelievable Stock Charts: Freeport-McMoran, Alcoa, Peabody and Goldman Sachs

You might be right about FCX having a comeback, but you're wrong that commodity prices don't matter. The company is completely levered to commodity prices. What is their book value constituted of? Inventory, property, plant & equipment, and goodwill (not much cash on hand). The inventory consists of commodities and commodity-derived products. The properties, plant and equipment are valuable for no reason other than that they produce commodities (remote Indonesia? desert in the American SW? Congo?). The goodwill is from acquisitions of other companies equally levered to commodity prices - what's this worth if they have to shut down the mines they acquired?

Come on. If your only business is selling copper, gold, moly, etc. and the price of those items declines, your earnings will decline. If they decline far enough you'll go bankrupt. What kind of liquidation of FCX's assets could you run in this climate? You really want to bet that there's anything left over for equity-holders if we don't see a commodity comeback? The only thing keeping FCX afloat is that they come across some gold while mining minimally profitable copper.

AIG: How It Spent Your Tax Money

You guys are looking the wrong way by blaming short sellers and CDS buyers. Blame the CDS sellers and the management of companies that failed. If Lehman was sold off unjustly, they would have been able to demonstrate convincingly that their stock was undervalued - disclose the portfolio, find some buyers for good quality assets to raise capital, and show us the cash flows that justify their valuations for various securities they hold. If AIG got taken for a ride selling cheap CDS, maybe they should have done better DD on their CDS pricing and risk-management. You can't name one healthy company in history that was done in by false rumors or market manipulation. If AIG sold insurance, and AIG has money available to pay it (thanks to the gov loan, which is arguable), they must pay. They entered the transaction freely and profited at the front end. Time to pay the piper.