Professor Smith's Second Bubble "...after a bubble appeared in a trading series there would be a correction and then after the first correction, the bubble would usually reappear. The bubble starts to re-inflate, but this time the participants, burned by their previous experience are more cautious and the values do not become as extreme."
Having Your Cookie "Our basic market strategy evolves a large position in Berkshire because Berkshire is reasonably priced at present levels and with very solid long-term prospects. But more than this, it offers a hedge against a substantial market decline. With its huge cash positions and with Buffett to make the investment decisions, Berkshire is one stock that will get more valuable if the market declines.
Lackluster Performance "In just the last two years Buffett has realized gains of $8.2 billion in his bond and FOREX trading. Add in another $1.9 billion of unrealized gains in the junk bonds he still holds and maybe $200 to $300 million per year in interest income, and it is apparent that the chairman has enriched shareholders by about $10.5 billion with his trading skills in two years. This definitely does not meet my definition of 'lackluster performance.'"
He that Uses the Best Models Wins "A transcript of a speech given by Charlie Munger in 1994. It is in my opinion a masterpiece of simple logic as developed by a very complex intellect. The basic premise is that a person's ability to deal successfully with life is based the models that they use to interpret events."
Private Equity, Hedge Funds, & Value Investing "...there is one thing I have learned through 38 years of investing: the market will always do what it has to do to prove the majority wrong. Or as Buffett says, you pay a high price for a cheery consensus. This is not because the market is perverse, but because the market is a zero-sum game and frictional costs mean that there will always be more losers than winners."
The Buffett Premium "We have been hearing so long about this Buffett premium and the universal assumption has always been that there will be stock decline when he leaves. I would like to suggest, just for the sake of being argumentative, the possibility of a Buffett discount and propose a scenario where the stock price will increase in his absence.""
Cheaper Elephants "One thing is different now compared to 2000. The elephants are cheaper, though not quite table-ready. They are still a lot cheaper now than they were in 2000, and another bear market like the 2000 to 2003 experience might well relieve Berkshire of a large portion of their cash problem. In 2000 Coke was selling at 43 times earnings—now it is at 22; Wells Fargo was selling at 20 times earnings whereas today it is selling at a PE of 14.8; Costco was 50 times earnings and now it is 21.7; Anheuser Busch was at 27 is now 16.7.
Unintended Consequences "Expansionary monetary policy promotes growth, prosperity, and full employment, but as always there are unintended consequences and when the medicine is applied to an economy too liberally for too long, money becomes so easy that the games begin. Huge sums are available to managements whose main imperative is self enrichment. Equity bubbles expand, companies like Enron appear, flourish, and spread their lust for fast, conspicuous wealth as if it where a communicable disease."
The Credit Bubble "It has been said that the main force pushing the speculation in housing today are the loose lending standards. One reason for these loose standards has to do with mortgage securitization. A number of private companies (not Fanny or Freddy) have now entered the mortgage securitization business and the loan officer can now sell any kind mortgage that he can dream up. The securitization of these loans means the people writing the mortgage bear none of the risk generated by the loan. He gets to keep his fees and transfers most of the risk to the investors buying the bonds. Whether the buyers of these bonds (hedge funds, foreign investors, etc.) understand the risks they are accepting is an open question."
Berkshire Look-Through Earnings "This would mean that per-share earnings growth for the seven year period was equal to 15.2% on an annual basis for the period that includes both the purchase of General Re and 9/11. During the same period, GE has grown its per-share earnings at an annual rate of 9.8%, and Microsoft at 15.8%."
The Price of Easy Money "The problem is that prolonged comfort has conditioned financial institutions globally to price their financial contracts with inadequate risk premiums. If pain is the mother of wisdom, does not comfort make us stupid?"
Exogenous Events "In the world today does it really matter what the name is on the paper? Yuan, Yen, Euro, Won, or Dollars, they are all exchangeable and transferable to anywhere in the world overnight. There is lots of evidence that the world is awash in cash, yet no one is worried about a serious inflation".