As Berkshire Hathaway Takes A Dive, Buffett Army Mobilises to Protect Their God
So it’s apparent that something funny is going on with Warren Buffett’s investment vehicle Berkshire Hathaway. Those big investments in Goldman Sachs and General Electric are looking shaky, and so Berkshire’s share price has been plunging in the last few days, down almost 40% for the year. And now credit default swaps on the company (the cost to protect against Berkshire not being able to pay off its debts) have tripled in two months. There is even word they may lose their triple-A credit rating, which could have large ramifications as many of their business contracts will alter in BAD ways should said rating drop.
For you and I this may not mean much, but for the army of Buffett worshippers, whose world would literally crumble at its foundations if Buffett were found to be not-so-smart and fallible just like the rest of us, this is like a clarion call to battle. And any journalist unfortunate enough to have a comments facility under his article has been receiving hard core abuse for even suggesting ‘The Buffett’ might be in troubled waters.
Felix Salmon at Portfolio was copping heavy flak yesterday:
“Go back to acct. 101.” – wow
“Atrocious journalism by Bloomberg and lazy blogging by everyone else.” – Sunset_Shazz
“The attack on Berkshire is long on conjecture and short on facts or insight.” – zigurrat
Over at the NY Times it was even worse, as Andrew Ross Sorkin tried to suggest Buffett’s equity investments weren’t that clever (in fact, didn’t we flag that up a few weeks ago?):
“in Long Term both GS, GE will do fine. And writer of this article will bite dust” - Varun
“i think this article’s author should have a slightly more than kindergarten-level understanding of Buffett’s style of value investing — developed and proven over 5-decades of unbelievable performance — before writing such a foolish piece.” – snoman
OUCH OUCH OUCH!
Thankfully the boys at Bloomberg, Erik Holm and Shannon D. Harrington, who sparked off this story, don’t have a comments board to weep over.
There was one interesting comment on Salmon’s blog though, ominously posted by ‘anonymous’:
“is [Berkshire] under a speculative attack that could easily become a self-fulfilling prophecy. We seem to be learning that there are many, many different ways to generate a “bank run” in the modern economy.”
Really? A run on ‘The Buffett’? IS NOTHING SACRED!
Posted by Becky North in Hot Money | November 21, 2008 1:03PM |
November 21st, 2008 at 2:12 pm
Instead of arguing with you, I will talk about the investing and probability sensibilities of Buffett and Munger. My new book is really about “decision framing.” “The Four Filters Invention of Warren Buffett and Charlie Munger” ( amazon.com/dp/0615241298 ) examines each of the basic steps they perform in “framing and making” an investment decision. This book is a focused look into this amazing invention within “Behavioral Finance” that has been underappreciated by both the business and academic communities. The genius of Buffett and Munger’s four filters process was to “capture all the important stakeholders” in a “multi-variable” equation or formula. Imagine…Products, Enduring Customers, Managers, and Margin-of-Safety… all in one mixed “qual + quant” formula. When these guys make a bet, the do so with house odds.
November 21st, 2008 at 2:26 pm
There is no doubt that we have achieved bank run mentality to all purposes. If Buffet’s is next, so be it. If the great investor didn’t see this as a possibility it only proves he is fallible as we all are. Buffet saw an opportunity and knocked on it. In highly volatile times, such plays can make, or break you.
November 21st, 2008 at 3:24 pm
There are a lot of hungry, desperate hedge fund managers out there looking for something to spike…
November 21st, 2008 at 4:03 pm
is no one allowed to knock the sage without triggering these mad, irrational mud slinging matches.
btw he will be dead before the investment horizon on these bets is reached, or has buffett got a “multivariable decision framing” solution for that as well?
November 21st, 2008 at 5:08 pm
Clayton, a Berkshire subsidiary, just laid off 90 people from their corporate office and closed two additional manufacturing plants. Clayton also owns a huge number of mortgages with risky loans so I predict a further tumble for Berkshire.
November 22nd, 2008 at 2:54 am
You should quit your day job as journalist. Look for another job that don’t tax your little brain so much.
November 22nd, 2008 at 2:21 pm
Yeah, like arbitrage… nice to see sexism is alive and well amongst Buffet lovers.
November 26th, 2008 at 4:38 pm
I’ve been saying for months (since BRK-B was at about $5K) that BRK is not immune to this downturn and/or volatility. Nobody really knows what Berkshire is really worth. All I know is that until recently, it’s stock has held up well…. too well.
Berkshire owns businesses. These businesses, some more than others, are going to have hits to their earnings. This affects Berkshire. Of course, nobody wanted to acknowledge that and the price was propped up. All they had to do though was add the revelation that derivatives are involved. This freaked out enough people that the price finally went down with the rest of the market. Even so, the price is just now becoming reasonable. It’s NOT a great bargain as so many would have you believe. It’s just a reasonable price considering the future risks. For the first time, I’m actually considering a purchase. Good luck to us all.
November 30th, 2008 at 9:53 pm
Buffett can sit on his investments until they turn ripe, but that NY Times op ed about buying American equities was irresponsible – mum’s/dad’s/buffett worshippers who followed that advice are all getting burnt