A severe liquidity crisis enveloped the credit markets. As a result, the stock market has been very volatile and financial service company stocks have come under heavy selling pressure. Wally Weitz writes to shareholders about his views.
In a severe liquidity crisis, however, fear and uncertainty—regardless of the triggering event(s)—cause lenders and borrowers to become leery of each other and normal banking activity slows or stops. For a strong company with excess capital, this is an inconvenience. For a leveraged company dependent on short-term borrowings, it can be a terminal problem.
Central banks around the world are intervening to inject liquidity into their capital markets and inevitably the crisis will pass. The issue of credit losses will take much longer to work its way through the system, but except for highly leveraged investors and other extreme cases, these losses should be manageable for most companies.
This is not the place for a detailed review of each of our stocks, but we would like to assure our shareholders that we believe that our major financial stock holdings—Berkshire Hathaway, AIG, American Express, Fannie Mae, Freddie Mac, Redwood Trust and (even) Countrywide Financial—have the balance sheet strength and access to liquidity to not only survive the current panic but to take advantage of this period of distress. Times like this create opportunities to buy stocks at prices that can generate above-average returns when the panic subsides and valuations return to more normal levels. We are double checking our facts and stress-testing our models, and where we think appropriate, adding to several of these (very) out of favor stocks. We particularly appreciate your support and patience at times like this, and we look forward to reporting more positive news when the crisis passes.
Read the complete commentary
Also check out:
In a severe liquidity crisis, however, fear and uncertainty—regardless of the triggering event(s)—cause lenders and borrowers to become leery of each other and normal banking activity slows or stops. For a strong company with excess capital, this is an inconvenience. For a leveraged company dependent on short-term borrowings, it can be a terminal problem.
Central banks around the world are intervening to inject liquidity into their capital markets and inevitably the crisis will pass. The issue of credit losses will take much longer to work its way through the system, but except for highly leveraged investors and other extreme cases, these losses should be manageable for most companies.
This is not the place for a detailed review of each of our stocks, but we would like to assure our shareholders that we believe that our major financial stock holdings—Berkshire Hathaway, AIG, American Express, Fannie Mae, Freddie Mac, Redwood Trust and (even) Countrywide Financial—have the balance sheet strength and access to liquidity to not only survive the current panic but to take advantage of this period of distress. Times like this create opportunities to buy stocks at prices that can generate above-average returns when the panic subsides and valuations return to more normal levels. We are double checking our facts and stress-testing our models, and where we think appropriate, adding to several of these (very) out of favor stocks. We particularly appreciate your support and patience at times like this, and we look forward to reporting more positive news when the crisis passes.
Read the complete commentary
Also check out:
