Friday, January 23, 2009

don't really mean to pick on buffett today, but....

berkshire stock's not doing well these days. since late summer '08, it has fallen from about $140,000/share to about $89,000 or so. plus, and more importantly, there has been rather shocking deterioration of berkshire's investments.

in the last 60 days, berkshire's investment portfolio
has plummeted in value. buffett has lost over $4.5
billion alone on his 300 million share investment in wfc since 12/1/08, and another $1
billion loss on usb shares; both
stocks have been halved in less than two months. his
most recent investments in bni, ge and gs have deteriorated markedly in value from his cost basis.

equally important, i believe that berkshire's large derivative position -- namely,
short puts on the S&P 500 -- was evidence of investment
style drift. regardless of that view, berkshire has now
likely recorded a nonrealized loss in excess of a $10
billion on the index short put position. A loss on that
scale, whether realized or unrealized, is large even for
warren buffett.

moreover, the us "economic pearl harbor" (as buffett himself recently put it) has humanized
and brought down to earth many of the smartest investors
in the world (e.g., buffett), as well as the
entire private equity universe, many well-regarded hedge
funds and investors (e.g., marty whitman and bill miller), and some masters of the universe in residential
and nonresidential real estate, among others (zell). many
industrialists, including aubrey mcClendon, kerkorian, adelson and redstone,
have been thrown under mr. market's bus, as have
financiers fuld, cayne, thain and bac's lewis.

while a downfall of a widening list of investment,
financial and industrial icons have historically been
associated with a market and economic bottom, the lesson
remains the same: the average individual investor might want to continue to err on the side of conservatism in a market
that provides a wonderful setting for trading but a
not-so-exquisite setting for investing.

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