JasonC

Berkshire Hathaway Credit Risk, Index Puts Are Overblown Worries

CDS speculators are the new Enron pirates and they are simply attempting to create self fufilling prophecies anywhere they can. The sooner authorities wake up to this and close down the entire CDS circus act, the better for everyone. It is an entirely fantasy market unmoored from real anything at this point, and its gyrations have no more to do with underlying financial realities than a pinpall machine does.

Buffett Likes to Be Early; Don't Rush to Follow

Do rush to follow. As usual, Buffett is right and the headline chasing market timers are hopelessly wrong.

Buffett and the Limits to 'Awaiting Better Times'

I'll go farther - the only people who have lost money in this market are speculators who bet with borrowed money and were forced to sell, and have nothing to get back in with. No one else has lost a dime.

You will say I am nuts, because the market value of your holdings, today, is lower than it was a year ago. First did you buy it all a year ago? Very likely you haven't lost anything, you just haven't gained as much as you hoped at one time. But even supposing you bought a large portion recently at higher prices, I still claim if it was your own money, that you haven't (yet) lost a dime.

How's that again? I mean, if the quote is lower than the cost paid, and you sold today you'd have gone money to money on a round trip and have less out at the end. True, but if you jumped off a cliff you'd die, it doesn't mean you are dead. Don't sell at these reckless fear driven low prices. If it is your own money not borrowed, nothing is going to force you to sell.

Lower price *quotes* are *offers* from Mr. Market. But it Mr. Market has lost his mind, who cares what he is saying? He says he won't pay you anything for your stock, OK, so you know you aren't selling to him. Where's the bad? Now, if his price is insane and you have cash or can save some, take him up on the other side of his insane offer and buy.

But you haven't lost anything, if the future price in normal times of your purchased assets is more than you paid for them. The current quote is irrelevant, and only quote that counts is the one on selling day. And you are in charge of when selling day is, not the market.

If is possible to overpay for a company, and for it to never earn out what you paid for it. It is possible for one or two to go bust and stick you with permanent losses, but all aren't ever going to. It may make sense to sell something you bought to immediately buy something more attractive, and that doesn't count as selling at a loss, it is just switching the form of your bet on the future, from that point on.

But as long as the prices of your assets are higher, overall, than what you paid for them years and years earlier, you haven't lost a cent.

Part of the panic idiocy in the financial sector right now is driven by mark to market valuation rules in their accounting, which force them to record losses in earnings whenever some bond they own declines in price, even if the bond pays as before. They are earning a higher rate on a smaller current value, but the same earning stream over all.

So are you. You previously owned all the future earnings of the companies you have stakes in, in proportion to your stakes in them. And you still do. Those future earnings have not been materially changed by fluctuating prices (full blown bankruptcies excepted, to be sure). You or others may have hoped they'd be higher than they are actually going to turn out to be, but you own the same full stream as you did a year ago.

You can call that stream a smaller capital earning a higher rate of return, or a bigger capital earning a lower rate of return. But it is the same future cash flows.

Don't get caught up in the panic idiocy of insane accounting.

Now is a great time to buy, and you haven't yet lost a cent. But if you got shaken out now, swore off the stock market, and never went back to it - then you'd have permanent losses. Not only from selling at current quotes, but from losing all the higher returns you could have had from a lifetime of stock investing.

Let the market buck and roar all it likes. It can't hurt you. Buy more if you can. This too shall pass.

Why Is Everybody Selling as Buffett Is Loading Up?

notsosmart - no you wouldn't.

I've been buying - moved 10% from short term bonds to stock yesterday. Calling bottoms is a fools errand, can't be done. Proof - you see any owner of the world who made it all calling bottoms? But calling levels is easy. Holding long term is easy. Dollar cost averaging is easy.

Does Warren Buffett Think Goldman Is More Creditworthy Than GE?

No, he thinks both are entirely creditworthy and that Mr. Market is stark raving mad.