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Some additional thoughts on Warren Buffett March 5, 2009

Posted by shaferfinancial in Finance, Uncategorized.
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Here’s an example of recency bias.  Since 2000 the book value for Berkshire Hathaway has increased 127%.  That’s almost 10% per year.  In that 9 year time period Berkshire has had both its down years (the only ones in Buffett’s history).  Three of those nine years were terrible for the insurance industry [hurricanes, 9/11].  Compare that to the S & P 500 and its 28.3% loss over those nine years!  Oh and by the way the Berkshire numbers were after tax while the S & P numbers were pre-taxes.  Yet, almost universally Buffett is lampooned as a doldering old fool who lost his edge!  Can you say recency bias????

Missed is his move into energy and further movement into insurance.  Insurance is bought to protect against risk.  Do you think that the future might dictate major insurance policies bought by the largest companies in the world to protect against risk?  Do you think they might want to hedge their bets?  Do you think  that one of only seven AAA rated companies would be a place folks might look for that insurance?  And energy, do you think going forward there might be some energy issues?  With China and India (2.3 Billion people) coming on board as fully industrialized nations, do you think there will be a world-wide need for energy?  Does anyone believe energy is going to get cheaper to obtain?

Buffett has a plan.  Remember I have pointed out before that all wealthy people create a plan and stick to it in good times and bad.  The plan, seems simple, but few others have the emotionally capability to put it into play and stick to it.  The plan has been articulated in countless ways and countless times.  From this years letter to investors:

In good years and bad, Charlie and I simply focus on four goals:

(1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of

excess liquidity, near-term obligations that are modest, and dozens of sources of earnings

and cash;

(2) widening the “moats” around our operating businesses that give them durable competitive

advantages;

(3) acquiring and developing new and varied streams of earnings;

(4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.

Now I ask you, Is Warren Buffett a doldering old fool?

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Comments»

1. Joshua - March 5, 2009

Dave:

I think you have mentioned this before but I believe you had said that Buffett doesn’t believe in splitting the stock?

It makes it hard for poorer folks like me to invest in his stock even when I want to just for the price. I normally try to dollar cost average into my Roth IRA by investing $50-100 per month. I’d have to save for almost an entire year to buy a single stock of his.

But, I’m going to guess you’ll say… it’s worth it? Why not split so those of us with smaller amounts can invest too?

2. Infant - March 5, 2009

Thanks for the info, David

3. investmentblogger - March 6, 2009

Hi Dave, we can’t forget that the general population also uses their own flawed performance measuring methods to measure Buffett’s investment performance: They look at his stock holdings or purchases, and check if the market prices have declined or not in bad economic times. If it has, then they conclude he made bad investments, if they don’t decline they conclude he made good investments. Most people think so short term and focus on immediate market price, while he is looking at something entirely different with a much larger time horizon. Also, can’t forget to mention the majority’s flawed investment measuring stick is a byproduct of flawed planning or none at all, which is the main reasons for the majority’s investment losses.


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