Buffett - past his time?
- Thread starter Uncle Festivus
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No Ordinary Duck
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"Buffett Load"
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If you really look at the bet, it expires when he is 96.
The price he wrote the put, the market indexes were nearly 50% below their level of 9 years ago. By the time the puts expire it is likely that half of the stocks constituting those indexes will have been changed (history tells us this).
With inflation over the next 20 years almost a given (due to the massive govt spending), then the new inflated value of these indexes make this an easy winner for Buffett. Plus he may help some of the new stocks entering the indexes achieve very good results, by using some of his put premium.
The man is A, not stupid and B, not a saint.
What I would really like to know is what idiot is on the other side of this bet?? that has looked at the history of indexes in the US and called it bunk??
brty
The price he wrote the put, the market indexes were nearly 50% below their level of 9 years ago. By the time the puts expire it is likely that half of the stocks constituting those indexes will have been changed (history tells us this).
With inflation over the next 20 years almost a given (due to the massive govt spending), then the new inflated value of these indexes make this an easy winner for Buffett. Plus he may help some of the new stocks entering the indexes achieve very good results, by using some of his put premium.
The man is A, not stupid and B, not a saint.
What I would really like to know is what idiot is on the other side of this bet?? that has looked at the history of indexes in the US and called it bunk??
brty
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The top 10 questions that Jeff Matthews readers would like to ask Buffett at the AGM.
#1 To what extent does Berkshire's reinsurance business rely on Ajit Jain and is there currently another individual in the division capable of replacing Mr. Jain?
#2 Why not either sell the Moody’s position entirely since the franchise value and moat are severely and possibly permanently impaired (redeploying capital into more attractive investments that no doubt exist); or buy Moody’s entirely and use the Buffett/Berkshire reputation to entirely revamp Moody’s into a highly valuable business again? Berkshire may be one of the only franchises that could install the integrity needed to turn around the ratings agencies.
#3 Washington Post went from being a local paper to a national paper to a learning company. Wells Fargo went from being a conservative bank to a highly leveraged mortgage lender. Moody's went from being a boring ratings agency to a co-conspirator in the mortgage bubble. How do you justify holding stocks “forever” when the original investment eventually becomes unrecognizable in most cases?
#4 You said in your letter the United States' best days lie ahead of it. Upon what do you base that statement: economic data, natural optimism, political pressure, or wishful thinking?
#5 Isn't there significantly more risk than what you are suggesting in your sale of long-dated index puts? If one had sold puts on the Dow from 1927 to 1929 (during the run up, a period similar to when Berkshire sold their options), 15 years later, the market was down from an average of say 300 on the DJIA to approximately 140 a loss of a little over 50%. And if one had reinvested the premium in the market, one would have lost 50% of that. So the cheap financing ( less than 1%) does not end up being cheap. Finally, isn't there a risk of doubling down on the stock market as most of Berkshire's business returns are tied to returns in the stock market?
#6 You’ve written See’s Candies’ beauty rests in the minimal incremental tangible capital required to grow profits. Recently, you’ve expressed excitement for Berkshire’s investments in utilities, insurance and railroads – capital intensive industries potentially facing massive inflation. Can you reconcile these contrasting viewpoints?
#7 What factors, if any, would cause you to change your favorite holding period from “forever” to “sometime in the future” when thinking about the challenges your businesses face?
#8 On Conoco, it seems Berkshire made the uncharacteristic move of buying an asset with a price chart that went straight up, rather straight down. Please explain the decision making process on Conoco and what you learned from this admitted mistake.
#9 Being a major shareholder in Moody's, why didn't Mr. Buffett play a more active role in urging Moody's to change its rating process and save it from disrepute?
#10 How do you sleep at night knowing you sacrificed Ron Furgeson [sic; it is spelled Ferguson] to avoid your own responsibility with the General Re/AIG crime?
Jeff Matthews
I Am Not Making This Up
http://jeffmatthewsisnotmakingthisup.blogspot.com/
Any questions from ASF members?
#1 To what extent does Berkshire's reinsurance business rely on Ajit Jain and is there currently another individual in the division capable of replacing Mr. Jain?
#2 Why not either sell the Moody’s position entirely since the franchise value and moat are severely and possibly permanently impaired (redeploying capital into more attractive investments that no doubt exist); or buy Moody’s entirely and use the Buffett/Berkshire reputation to entirely revamp Moody’s into a highly valuable business again? Berkshire may be one of the only franchises that could install the integrity needed to turn around the ratings agencies.
#3 Washington Post went from being a local paper to a national paper to a learning company. Wells Fargo went from being a conservative bank to a highly leveraged mortgage lender. Moody's went from being a boring ratings agency to a co-conspirator in the mortgage bubble. How do you justify holding stocks “forever” when the original investment eventually becomes unrecognizable in most cases?
#4 You said in your letter the United States' best days lie ahead of it. Upon what do you base that statement: economic data, natural optimism, political pressure, or wishful thinking?
#5 Isn't there significantly more risk than what you are suggesting in your sale of long-dated index puts? If one had sold puts on the Dow from 1927 to 1929 (during the run up, a period similar to when Berkshire sold their options), 15 years later, the market was down from an average of say 300 on the DJIA to approximately 140 a loss of a little over 50%. And if one had reinvested the premium in the market, one would have lost 50% of that. So the cheap financing ( less than 1%) does not end up being cheap. Finally, isn't there a risk of doubling down on the stock market as most of Berkshire's business returns are tied to returns in the stock market?
#6 You’ve written See’s Candies’ beauty rests in the minimal incremental tangible capital required to grow profits. Recently, you’ve expressed excitement for Berkshire’s investments in utilities, insurance and railroads – capital intensive industries potentially facing massive inflation. Can you reconcile these contrasting viewpoints?
#7 What factors, if any, would cause you to change your favorite holding period from “forever” to “sometime in the future” when thinking about the challenges your businesses face?
#8 On Conoco, it seems Berkshire made the uncharacteristic move of buying an asset with a price chart that went straight up, rather straight down. Please explain the decision making process on Conoco and what you learned from this admitted mistake.
#9 Being a major shareholder in Moody's, why didn't Mr. Buffett play a more active role in urging Moody's to change its rating process and save it from disrepute?
#10 How do you sleep at night knowing you sacrificed Ron Furgeson [sic; it is spelled Ferguson] to avoid your own responsibility with the General Re/AIG crime?
Jeff Matthews
I Am Not Making This Up
http://jeffmatthewsisnotmakingthisup.blogspot.com/
Any questions from ASF members?
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The 'bet' is still current, so it's yet to be determined who will be the idiot?
This is insurance. This is the business Berkshire is in. I pay $1500 pa to NRMA to insure my car for $30,000. Will I be an idiot if I never have a car crash and make a claim? Is NRMA an idiot if I do? Berkshire is in the business of protecting peoples assets for a fee. Berkshire needs to make sure they price the risk correctly but if all goes well Berkshire gets a fee and the customer gets peace of mind.
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You should probably direct your questions to the poster who called the counter party(s) an idiot??
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Poor ol Warren, soon be down to his last Billion?
