Warren Buffett 02 (Feb 10 - May 15)

[winston]

40,000 on pilgrimage now ...

Buffett makes good bets, bad bets

(Reuters) - Warren Buffett may be the world's most famous investor, but even he doesn't get everything right.

Berkshire Hathaway Inc (BRKa.N) (BRKb.N), the insurance company Buffett has run since 1965, owns roughly 80 companies and invests in dozens of stocks.

It is sometimes said that even the best investors might get only six out of every 10 bets right. So while shareholders who have stuck with Buffett, 79, for the very long haul have been amply rewarded, the ride has not always been smooth.

The following are a handful of Berkshire's investments over the years -- the good, the bad and the unknown.


THE GOOD


* In 1976, Berkshire began accumulating an equity stake in auto insurer Geico Corp, 24 years after selling an earlier stake for $15,259. It finished buying Geico in 1996. The acquisition brought aboard Tony Nicely, who still runs Geico and whose leadership Buffett has lavishly praised, and Lou Simpson, whom Buffett has said could replace him as Berkshire's chief investment officer but for the fact that he, too, is in his 70s. Geico has roughly tripled its U.S. auto insurance market share to 8.1 percent since Berkshire bought the entire company. The insurer generated about 12 percent of Berkshire's revenue in 2009.

* In 1989, Berkshire bought $600 million of preferred stock in Gillette Co, the razor blade maker that had been hurt by the introduction of disposable razors. In 2005, Gillette was acquired by Procter & Gamble Co (PG.N). Although it sold some Procter & Gamble shares in late 2009 to fund other investments, Berkshire at year end still held a 2.9 percent stake worth $5.04 billion, and for which it had paid just $533 million. While Buffett in his 1995 shareholder letter called Gillette "our best holding," he also said he made his "biggest mistake" by opting to buy preferred stock rather than common stock.

* Berkshire owns 200 million Coca-Cola Co (KO.N) shares, an 8.6 percent stake it had amassed by 1994. The stake was worth $11.4 billion at year end. Berkshire paid $1.3 billion for it.


THE BAD


* In 1993, Berkshire bought Dexter Shoe for $433 million in stock. Eight years later, it folded the struggling company into another business. In his 2007 shareholder letter, Buffett called Dexter Shoe "the worst deal that I've made."

* In 2008, Buffett amassed a large stake in oil company ConocoPhillips (COP.N), not expecting oil prices to fall by about three-fourths from their record high. Berkshire spent $7.01 billion on Conoco shares, but has been reducing its stake. "The terrible timing of my purchase has cost Berkshire several billion dollars," Buffett said last year.


THE UNKNOWN


* Buffett has entered into derivatives contracts, most of which are essentially bets on the long-term direction of stocks and junk bonds. He has said these contracts differ from other derivatives that are "financial weapons of mass destruction" in part because of the billions of dollars of premiums he collects upfront from counterparties, and because Berkshire generally does not need to post collateral.


Berkshire has four major types of contracts:

-- Berkshire has equity index "put" options tied to where the Standard & Poor's 500, Britain's FTSE 100, Europe's Euro Stoxx 50 and Japan's Nikkei 225 trade between June 2018 and January 2028. At year end, Berkshire had a $7.31 billion paper liability on these contracts and said it could in theory owe $37.99 billion if the indexes all went to zero.

-- Berkshire has contracts tied to credit losses in higher-risk "junk" bonds, which at year end were on average expected to mature in two years. At year end, Berkshire had a $781 million paper liability on the contracts and said it could in theory owe up to $5.53 billion.

-- Berkshire wrote credit default swaps on various companies, mostly investment-grade. At year's end, Berkshire had no liability on these contracts.

-- Berkshire entered into tax-exempt bond insurance contracts structured as derivatives. At year end, Berkshire had an $853 million liability and $16.04 billion of potential losses. The bonds are largely secured by states' taxing and borrowing power.

* In September 2008, at the height of the financial crisis, Berkshire acquired $5 billion of Goldman Sachs Group Inc (GS.N) preferred shares that throw off a 10 percent dividend, plus warrants to buy an equivalent amount of common stock. The warrants carry a strike price of $115. Goldman shares closed Tuesday at $153.04, and those warrants are well in the money.

http://www.reuters.com/article/idUSTRE6 ... inessearly

[kennynah]

it could in theory owe $37.99 billion if the indexes all went to zero.

if this happens, there will be a lot more gigantic problems of the day to deal with than to worry about such trivialities...

article writer << write off

[winston]

Buy when others are fearful and vice versa.

Well, he has been selling Kraft and others.

[kanglc]

I find him extremely good in giving what seems to be the perfect answer or explanation or reason for doing what he has done. In this case, he'll say it's to support their purchase of BNSF.

[lithium]

I always think he is a trader.

But all his followers don't think, so they buy and hold. But the funny thing is, these value investors always have money to buy, market tank buy, market up, buy, just buy buy buy only. They have unlimited cash

[winston]

The stuff in his portfolio that are seen as "Buy & Hold" eg. Gillette, Coke etc. only accounts for 25% of the market cap of the company.

He is actually one of the biggest options player around.

Not too sure that he really understand the insurance / reinsurance business

[Musicwhiz]

I always think he is a trader.

But all his followers don't think, so they buy and hold. But the funny thing is, these value investors always have money to buy, market tank buy, market up, buy, just buy buy buy only. They have unlimited cash

Perhaps you should wonder where the cash comes from?

[iam802]

Buffett Subpoenaed To Testify Before FCIC Commission After Refusals To Appear Voluntarily

http://www.zerohedge.com/article/buffet ... oluntarily

[iam802]

Long article. Best to read it at the site itself.

----------------
Buffett fails to wow crisis panel on credit raters

https://ris.rois.com/9SOgHhm1148tDU*gIk ... nN02166322

* Buffett says rating agencies got it wrong like others

* Buffett urged by crisis panel vice chair to do more

* Crisis panel head calls Moody's a "triple-A factory"

* Hearing comes ahead of financial reform negotiations

* Moody's shares close up 3.1 percent

......

[LenaHuat]

I heard him say this but was waiting for the Bloomberg report so that I can just cut and paste it here.
Right now, the US budgetary deficit hits $13 trillion

June 2 (Bloomberg) -- Warren Buffett, whose Berkshire Hathaway Inc. has been trimming its investment in municipal debt, predicted a “terrible problem” for the bonds in coming years.

“There will be a terrible problem and then the question becomes will the federal government help,” Buffett, 79, said today at a hearing of the U.S. Financial Crisis Inquiry Commission in New York. “I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

Berkshire’s investment portfolio included municipal bonds valued at less than $3.9 billion as of March 31, down from more than $4.7 billion at the end of 2008. The company had a maximum of $16 billion at risk in derivatives tied to such debt, according to the company’s annual report for 2009.

Buffett, Berkshire’s chairman and chief executive, has previously warned about the risks of insuring municipal bonds. In his annual letter to shareholders in 2009, he said public officials may be tempted to default on bonds whose payments are guaranteed by insurance companies rather than push through needed tax increases. He said guaranteeing municipal bonds against default “has the look today of a dangerous business.”