Warren Buffett’s Double Speak
Though Warren Buffett certainly earns respect for his impressive returns at the helm of Berkshare Hathaway, the double speak on the topic of bailouts and speculative investing shows the kind of guy he really is.
Shareholder Letter
In his most recent letter to shareholders, Warren Buffett called on other companies to create penalties for executives who take risky wagers with shareholder/corporate cash. Ironically, it was Warren Buffett that cheerleaded the $700 billion bailout and also bought a huge stake in Goldman Sachs, a firm that engaged in risky investments itself and sustained no change in leadership.
Understandably, most of the letter was centered around the burden shareholders pay for irresponsible investments. However, it was a lack of responsibility and reinforcement of terrible business deals via the bailouts that made Buffett billions for his firm last year. The double speak is clear, don’t engage in risky investments if Buffett isn’t going to rake it in.
Buffett’s Own Risky Endeavors
Warren Buffett isn’t exactly as immune to risk as he aledges. Berkshire Hathaway in its investment portfolios and circle of insurance companies has significant positions in the derivatives market and is tied very closely to counter-party risk. Should one of the counter-parties on their derivatives holdings default, Buffett’s own insurance giants could take a huge blow. The derivatives portfolio added nearly $800 million in 2009 after losing over $7.5 billion in 2008. The losses would be substantially higher that the bailout been scrapped and banks like Goldman Sachs, AIG and others been left to rot.
MR BUFFETT YOU TALKING ABOUT. EXECUTIVE THAT RISK .
WHAT ABOUT GOVERNMENT WASTE ?
WHAT ABOUT GOVERMENT THEFT ?
ISN’T THIS A CRIME TO ?
NOBODY IN JAIL?
NOBODY LOSE THEIR JOB ?
WHERE IS 11 TRILLION DOLLAR GONE ?
WHERE IS SPECIAL PROSECUTOR?
Losing over $7.5 billion? Wow that is a very huge amount of money!
While Mr. Buffett is certainly not perfect, and nobody is, I think some of this is a bit misleading.
Sure, Buffett has risk, but his company Berkshire Hathaway had a TON of cash throughout the economic crisis, held stable businesses, and was in no danger during the whole fiasco. While the companies he criticized for engaging in excessive risk all crashed and burned during the economic meltdown, Buffett used his company’s excessively defensive liquidity to help bail some of them out, like Goldman Sachs and GE.
So his risk was so under control that even during the very worst of times, he was the one putting out his hand to bring others back from destruction.
What’s Your Investment IQ?
Many of the things you think you know about investing are part of a mythology designed to make you bounce around between investment products. Modern day “conventional wisdom” just isn’t all that its cracked up to be. Concepts you worship are inaccurate; indices and averages you trust do not tell the complete story; the basic investment concepts still work — but Wall Street won’t tell you what they are.
It’s time to determine your investment IQ, here’s the deal:
Just take the True-False test below and send me an email list of the statements you feel are generally TRUE — please refrain from including any rationale or explanation. If you don’t get 80% or more correct — you should attend our FREE Web Workshop.
On April 21st, I will be hosting a FREE Workshop where my panel of experts will discuss the answers, the rationale, and the concepts in and around each of the statements. You will be able to participate, ask questions, whatever. No one will try to sell you any products.
Here we go: Generally speaking, are the following statements mostly True or mostly False? Note: you’ll do better if you research terms that you are unfamiliar with. Terms in “quotes” have very specific meanings in the Market Cycle Investment Management/Working Capital Model methodology.
1. The proper gauge of your Investment Portfolio Performance is the change in your market value vs. the S & P 500 or Dow Jones Industrial Average over the course of a calendar year.
2. Mutual Funds are a safer route to long-term investment success than trying to create your own portfolio of individual securities.
3. You really don’t need to worry about growing your “Base Income” until a year or so before you plan to retire. That’s the time to begin designing a safe income portfolio.
What’s Your Investment IQ? — for the rest of the test questions, workshop sign up instructions, etc, go to:
http://kiawahgolfinvestmentseminars.net/Inv/index.cfm/5641