I have been a big fan of Warren Buffett, as his record is undisputed in the history of investing. I have a small notebook where I write the most important lessons I have read about investments that I keep for my 10 year old daughter, and the person I quote the most in there is Warren Buffett as i think his investment wisdom is beyond most other gurus. I am a holder of Berkshire Hathaway’s stock. Unlike Dog Kass, I think Buffet knows exactly what he is doing and in fact I have even added to my Berkshire Hathaway position in the past 30 days. That said, I cannot understand Buffett’s comments in his Oct. 16 New York Times article “Buy American- I am”. In that article, Buffett was basically telling us to buy stocks of American companies.
Buffett famously wrote: “If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities.” I was under the impression that Buffett meant what he said, he would buy American Equity as these prices, as they were looking attractive to him.
Fixed income debt instruments and preferred shares are not United States equities. In fact, as far as asset allocation goes, you add to your fixed income positions when you think stocks are getting to risky for you. So let’s say you would be 60% stocks, 40 % bonds and fixed income, if you want to reduce your risk, because of your lower expectation on future stock returns, you would add to your bonds and other fixed income positions like preferred shares or corporate notes, and you would reduce your equity positions. So from our example of 60% stocks, 40 % fixed income, you may go to 50% stocks and 50% fixed income.
So we cannot count recent purchases by Berkshire in Goldman Sachs preferred, General Electric preferred or Tiffany debt or Harley-Davidson senior unsecured notes at 15% annual interest payment as equity positions, or as Buffett following his own NYT article’s advice. Not only these are deals we mortals cannot get since we are not Buffett, but none of these are American common stocks and therefore do not qualify as “United States equities” as he writes in his article.
Granted, Buffett never wrote in the article that he would buy more stocks for the Berkshire Hathaway’s portfolio, he only talked about his personal portfolio. But still the point remains: if it was such a good deal to buy stocks, why not buy more stocks for Berkshire?
From where I stand, things now get a bit more confusing, as based on the latest 13B fillings; he actually sold a lot of American stocks during the same quarter he wrote his “Buy American” article. He sold a large portion of his positions in : Procter & Gamble (PG, Financial), Johnson & Johnson (JNJ, Financial), ConocoPhillips (COP, Financial), US Bancorp (USB, Financial), UnitedHealth (UNH, Financial), and most those proceeds went into non equity instruments, like debt or preferred stocks paying Berkshire a very nice yield. A good place to park your money while American equity is going south. Yes, Buffett said he realy did not want to sell them, but then with the money from the sales, Buffett purchased $300 million of debt from USG Corp; preferred shares of Goldman Sachs with a 10% yield; $2.6 billion into Swiss Re instruments with a 12% yield. These are all great allocations with amazing yields, but these are all asset allocations away from “United States equities”.
Buffett wrote: “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
Now, he tells us the American economy is in shamble for some time. I assume some people must have purchased equities encouraged by Buffett’s article and they probably would not have done so if he would have told them, I am selling some stocks as I write this article, and I am putting the money in debt instruments with great yields. As a Berkshire shareholder I am happy he got into those great yields, but I am still confused on the article. If Soros would write such an article I would not be confused: since Soros admits to changing his opinion on a dime and one of his traits as a contrarian is that he always considers not only that all others may be wrong in their assumptions but even that he may be wrong in his assumptions. Soros is a trader and that is how he survives and prospers.
But Buffett, unlike Soros, is a long term investor, if he writes something in October 2008 I believe his opinion is not going to change so easily. October may still turn out to be a good time to have purchased United States equities in the long term, but I feel we all may need to get even more skeptical in these hard times of what we hear and read. Some you may not like my conclusion, Buffett is still a great investor but I will put less value on his articles from now on, as he seems not to follow it himself. At the end of the day, nowadays we can only rely on the facts of what actions were taken, what stocks were purchased and what was sold, the rest is just talk,or worst just noise, and should unfortunately be treated as such.
Buffett famously wrote: “If prices keep looking attractive, my non-Berkshire net worth will soon be 100% in United States equities.” I was under the impression that Buffett meant what he said, he would buy American Equity as these prices, as they were looking attractive to him.
Fixed income debt instruments and preferred shares are not United States equities. In fact, as far as asset allocation goes, you add to your fixed income positions when you think stocks are getting to risky for you. So let’s say you would be 60% stocks, 40 % bonds and fixed income, if you want to reduce your risk, because of your lower expectation on future stock returns, you would add to your bonds and other fixed income positions like preferred shares or corporate notes, and you would reduce your equity positions. So from our example of 60% stocks, 40 % fixed income, you may go to 50% stocks and 50% fixed income.
So we cannot count recent purchases by Berkshire in Goldman Sachs preferred, General Electric preferred or Tiffany debt or Harley-Davidson senior unsecured notes at 15% annual interest payment as equity positions, or as Buffett following his own NYT article’s advice. Not only these are deals we mortals cannot get since we are not Buffett, but none of these are American common stocks and therefore do not qualify as “United States equities” as he writes in his article.
Granted, Buffett never wrote in the article that he would buy more stocks for the Berkshire Hathaway’s portfolio, he only talked about his personal portfolio. But still the point remains: if it was such a good deal to buy stocks, why not buy more stocks for Berkshire?
From where I stand, things now get a bit more confusing, as based on the latest 13B fillings; he actually sold a lot of American stocks during the same quarter he wrote his “Buy American” article. He sold a large portion of his positions in : Procter & Gamble (PG, Financial), Johnson & Johnson (JNJ, Financial), ConocoPhillips (COP, Financial), US Bancorp (USB, Financial), UnitedHealth (UNH, Financial), and most those proceeds went into non equity instruments, like debt or preferred stocks paying Berkshire a very nice yield. A good place to park your money while American equity is going south. Yes, Buffett said he realy did not want to sell them, but then with the money from the sales, Buffett purchased $300 million of debt from USG Corp; preferred shares of Goldman Sachs with a 10% yield; $2.6 billion into Swiss Re instruments with a 12% yield. These are all great allocations with amazing yields, but these are all asset allocations away from “United States equities”.
Buffett wrote: “What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
Now, he tells us the American economy is in shamble for some time. I assume some people must have purchased equities encouraged by Buffett’s article and they probably would not have done so if he would have told them, I am selling some stocks as I write this article, and I am putting the money in debt instruments with great yields. As a Berkshire shareholder I am happy he got into those great yields, but I am still confused on the article. If Soros would write such an article I would not be confused: since Soros admits to changing his opinion on a dime and one of his traits as a contrarian is that he always considers not only that all others may be wrong in their assumptions but even that he may be wrong in his assumptions. Soros is a trader and that is how he survives and prospers.
But Buffett, unlike Soros, is a long term investor, if he writes something in October 2008 I believe his opinion is not going to change so easily. October may still turn out to be a good time to have purchased United States equities in the long term, but I feel we all may need to get even more skeptical in these hard times of what we hear and read. Some you may not like my conclusion, Buffett is still a great investor but I will put less value on his articles from now on, as he seems not to follow it himself. At the end of the day, nowadays we can only rely on the facts of what actions were taken, what stocks were purchased and what was sold, the rest is just talk,or worst just noise, and should unfortunately be treated as such.
