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Friday, December 26, 2008

CNBC: Timeless and Time-Tested Warren Buffett Watch Predictions

Warren Buffet in 2007
Gerald Herbert / AP

As a new year approaches, it is customary for journalists to make predictions about the future. This time around, CNBC.com has a collection of prognostications from CNBC bloggers on a special page: Predictions '09.

Last year around this time, Warren Buffett Watch offered its Eight Predictions for '08 .. and Beyond.

In keeping with Buffett's long-term way of looking at things, the eight predictions were intentionally on the 'timeless' side of the predicting spectrum.

Here they are again, with a little bit of editing. This could be the start of a new holiday tradition!

-----------------

Warren Buffett became one of the wealthiest people in the world by making predictions and putting money behind those predictions. Every time he buys a stock or a business or some other investment, he's forecasting the future.

Predictions 09 -- A CNBC Special ReportPredictions 09 -- A CNBC Special Report
Judging by the incredible returns of his holding company Berkshire Hathaway, Buffett and his colleagues are very good at making those predictions.

Of course, it helps when you can give your predictions plenty of time to come true. That's one reason Buffett's favorite holding period for investments in "outstanding businesses with outstanding managements" is "forever." After all, "We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely."

With that in mind, here are Warren Buffett Watch's 'timeless' predictions.

1. Recessions can't be avoided forever. As 2007 was coming to a close, Buffett told our Becky Quick that if unemployment picks up significantly, the "dominoes" will fall and the U.S. economy will fall into recession in 2008. He was right, but not alarmed. "It is the nature of capitalism to periodically have recessions. People overshoot." (He told Becky she's young enough to expect to see 6 or 7 or them.)

The economic downturn takes its toll at the almost-empty Bayshore Town Center Mall in Milwaukee, Wisconsin.
AP
The economic downturn takes its toll at the almost-empty Bayshore Town Center Mall in Milwaukee, Wisconsin.

2. We'll survive current and future recessions just as we've survived past problems. As Buffett told us in August, 2007, (and repeated throughout 2008): "We've got a wonderful economy... There's never been anything like that in the history of the world. We live seven times better than the people did a century ago on average... We've had problems all along. If you look at the last century, we had that Great Depression and World War Two, we had the Cold War, we had the atomic bomb, but the country does well."

3. Recessions will create opportunities. "I made by far the best buys I've ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap." Fast-forward to October, 2008, and Buffett's Why I'm Buying U.S. Stocks Now.

Ted Williams in 1938

4. All stocks won't be cheap. Like Ted Williams waiting for the right pitch, a successful investor waits for the right stock at the right price, and it doesn't happen every day. "What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out." You get in trouble, Buffett says, when you listen to the crowd chanting "Swing, batter, swing!"

Book cover: Benjamin Graham's "Memoirs of the Dean of Wall Street"

5. The crowd will make mistakes. Buffett cites this piece of advice from his mentor Benjamin Graham: "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."

6. Investors will mistakenly think falling stock prices are bad. "If they reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today. Anything you're going to be buying in the future, you want to have get cheaper."

Cinderella runs for her pumpkin coach
Walt Disney (1950)
Cinderella rushes for the exit as midnight approaches

7. Good times will prompt bad decisions. In his 2000 Letter to Berkshire shareholders, Buffett compared the crowd that buys big when prices are high to Cinderella at the ball. "They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future - will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."

8. There will be more dancing at another wild party followed by another painful hangover. Looking back at the Internet bubble, Buffett is quoted as saying, "The world went mad. What we learn from history is that people don’t learn from history."

Current Berkshire stock prices:

Class A: [US;BRK.A 99990.0 --- UNCH (0) ]

Class B: [US;BRK.B 3323.0 --- UNCH (0) ]



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Wednesday, December 24, 2008

CNBC: Warren Buffett Fans Explain Why They're Keeping the Faith

Rank-and-file investors are "losing faith" in stocks, according to a front-page story in the Wall Street Journal.

But rank-and-file readers of Warren Buffett Watch are reaffirming their own faith in the Oracle of Omaha and his call to buy U.S. stocks: "Be fearful when others are greedy, and be greedy when others are fearful."

A week ago, we asked for your thoughts on Faith, Doubt, and Warren Buffett at the end of a difficult year for Buffett followers.

Are you losing faith in Warren Buffett? The answer is a resounding 'no!'

There were almost 2000 responses to our non-scientific CNBC Poll asking that question. 77 percent of you chose, "No. Just as they have done before, stocks will bounce back. It's just a matter of time." (The poll remains open if you haven't voted yet.)

And here are many of the emails from around the world that I found in the buffettwatch@cnbc.com mailbox.

"The thundering heard never learns. In the late 1990's everyone wailed that Buffett had lost his touch and value investing was for old people unable to understand that 'this time it's different' and dot.com stock prices were going to infinity. Now everyone wails that Buffett has lost his touch and value investing is for old people unable to understand that 'this time its different' and all stock prices are going to zero. As the Harvard MBAs rush to put their money in zero yield T-Bills, I'm buying stock in companies with zero net debt, large amounts of cash on the balance sheet, strong positive cash flow, and growing earnings, at very low prices. Mr. Market hasn't changed since the days of Graham & Dodd and he never will."

- John S.

1999-2000. Cover page of prominent financial mag: "Warren Who"

2003. Same mag with Warren's profile in Roman warrior head gear: "Warren the Great"

- Rob & Monica

"I haven't ever doubted Warren Buffett, and when reading comments about people who say he needs a new crystal ball, I don't get fazed at all. Warren doesn't need a crystal ball as that would be gambling, no?

- Werner H., South Africa

"Let's not forget that Mr. Buffett, if I am not mistaken, lost about half his net worth back in the early 70s. Guess his strategy does, in fact, work well over time!"

- Christopher, Maryland

"He's still the only person I trust to invest my savings. He has put his reputation on the line repeatedly. He cares if his shareholders make money. I have no doubts. Berkshire Hathaway investments are poised to provide significant returns in the future."

- Joyce S.

"I just finished reading his biography and I feel more confident than ever in his talent. His track record shows that he may not necessarily get in at the bottom but he buys when things are cheap. If we are patient as he is then we shall reap the benefits. People, including the WSJ, have been critical before and he has proven them wrong. He has a massive amount of cash and people who are distressed come to him for help. I hope he lives many more years to see the result of these recent investments and continue to share his wisdom. He is the perfect antithesis to Madoff and that is why he is so beloved."

- BW

"Warren Buffett has been in the investing business since the 1950s, and there is no reason to believe that he has all of a sudden lost his touch just because his stock went down. One of the reasons why people are not making as much money in the stock market, (and the reason why Warren Buffett has become so rich), is that people lose faith in their investing philosophy. This time again, those who believe in buying stocks at bargain prices, will be rewarded 5, 10 years from now."

- Daniel R.

Berkshire PortfolioGo to Berkshire Hathaway Portfolio Tracker

"These types of articles are the same as the ones written in 1999 and 2000 when Buffett was seen as not taking part in the dot com revolution, investments had passed him by. Then by the end of the bubble and downfall he was once again seen as the Wizard of Omaha. As a long term investor (not trader) it is best to buy on these dips. Too many people nowadays are traders and not investors. Buffett will again soon be seen as brilliant!"

- Jeff J., Wyoming

"He has made a lot of money on his BUD investment recently. He made some good deals on preferred shares in the last months. He is raking in dividends by the hundreds of millions every week and they are not taxed because not paid out in dividends. His companies are still very profitable. Where is the problem? Some people seem to be obliged to sell but that is their problem. The BRK share price will recover over time."

- Ludo T.

"I have a slightly different take. Albeit a dismal view. Since about 1997, we’ve had the dot com boom/bust which was the market going up but not for REAL. Then we had Enron, which proved our financial system was broken, enabling crooks to roam free. Now we have the Financial Services Meltdown which has only gone to PROVE the last 10 years were also not REAL. We all know, there’s more to come as we unwind this Enron-like fable! Now we have Madoff which most believe MUST be the tip of the ICEBURG. So, does ANYONE wonder why we are all depressed?

The EXPERTS (that did not predict this), now say, the stocks will bounce back. I believe they will come back but it will be many many many years and HOPEFULLY this time, it will be REAL. There is nothing to create a BOUNCE and nor should there be because for most of us ... it’s likely another sham, and will be time to get out!!! Don’t we deserve that! Don’t our Grandchildren deserve that? You have a lot of wise investors now, smart normal people who will be conned no more."

- Francis C.

"If his style of investments fail, then I am afraid it simply means that there is no such thing called investments. The whole Grahamian notion of investments in the domain of stocks is about applying a margin of safety. We all grew up believing that Warren Buffet applied this Grahamian notion in the best possible way. Despite that, if he fails then there is no such thing called investing in stocks.

I think we are being cruel to Buffet by measuring him in short-term when he himself makes no pretence of being a man with the crystal ball to know what's going to happen tomorrow. His bets today will have to be measured 5-10 years hence."

- S. Purohit

Pietro's photograph of Warren Buffett's news conference in Milan, Italy earlier in 2008
Pietro's photograph of Warren Buffett's news conference in Milan, Italy earlier in 2008

"Thank you for giving us the chance to say that we have not lost our faith in Warren Buffett. Of course, it is not religion, it is reason. Actually, he has proved to be successful for decades more than anyone else, and second, he has always explained in a simple way the basic principles, so there is no mystery. I am a very small European investor, but I want to tell you that following Buffett's advice, I am now investing more than ever before, and most in U.S. stocks...

Listening to the people who say that Buffett is not good anymore is stupid because it is always the same over the years. The stock exchange is cyclical, and every time it reaches the bottom, many people say that Buffett is wrong, and then they keep quiet when he gains again more than others, showing that they have not understood his old principles, and so many people go on selling when the stocks are down, and buying when they are up."

- Pietro

"For someone who has been a behind-the-sceens presence for years, it seems that Warren has embarked on an unusual new career since announcing his pending retirement - accessibility, visibility and now stock market muse. Despite his past ability to buy stocks (and the hold for the long term adviso), as well as the fact Warren doesn't buy stocks that he does not understand, it was surprising that Warren was dabbling in CDOs and SIVs.

I think Buffett has been on a year-long burnish the image tour, it seems there is a dual message to the public, back to buy/hold for the long term and be greedy in a down market. Maybe too much visibility has overshadowed his original theory of 'value investor.'

- CBB

"This whole thing cracks me up. Warren Buffett is the richest man in the world. He has made his fortune by being diligent, resourceful, and smart, and he takes calculated risks when he thinks they are prudent. Since when are such attributes detrimental? Capitalism, and the unprecedented wealth enjoyed by generations of Americans, have been built on such things. Since when are they bad?

You media folks just LOVE to spread the doom and gloom. Most of you are probably too young and 'wet behind the ears' to ever remember bad economic times. Economic downturns happen, and they, too, pass, as will this one. This post, and the media in general this past year, is the perfect example of how Generation Y and the millenials have been raised to run away instead of facing adversity. We are raising a bunch of chickens who are afraid of their own shadows and sheep who follow anybody with any idea. At some point they will all have to wake up and stand on their own two feet, especially when they realize mommy and daddy's fortune is no longer there to support their lifestyles...

Hard work and diligence -- AKA Warren Buffett -- never go out of style. Whoever loses faith in Warren Buffett is a fool."

- Mike & Rita

"The principles followed by Buffett as taught by Benjamin Graham, value investing for the 'defensive' and 'enterprising' investor of which Buffett falls into the enterprising class, is what should be questioned, if indeed there is to be any questioning.

However, I have seen no reason yet to question these principle which have proved sound over time. Interestingly you never hear anyone calling these principles into question to the extent as they are currently when the market in on the up. So why suddenly do it now?

Calling Buffett’s practices into question is like saying that there is certainty that sound corporations will fail to be successful in the future. I don’t think that anyone can say that this is the case with any conviction. What is questionable (once again) is speculation. Once again speculation has burnt many, whereas sound investment strategies will over the long run continue to show return. It is a failure of people to understand the distinct differences between speculation and investing that results in this questioning. People fail to question the soundness of the decision making, if they did they would fine that most of their decision making is more speculative rather than based on solid value investing as taught by Graham and followed by Buffett."

- Gregg B., South Africa

"I had to wonder about Buffett when he supported Obama. Whether it was a strategy to boost his holdings or a bout of senility, I'm not sure but, I think Buffett will shine again soon. His top quality holdings combined with his impeccable character will reward the faithful."

- John T., Pennsylvania

"My wife and I have our life savings in Buffett’s stocks, both 'A' & 'B.' We believe in him and always will. He is the greatest investor of our time and all time. The faint of heart have no business in the stock market in the first place. I find it amusing that he is doubted by individuals that have no reputation as investors, only reporters looking for a way to create a 'story' so they can justify their pay check. I call that kind of reporting irresponsible and it adds fuel to the fire of fear and doubt that investors have and it only prolongs a recovery that will come."

- Butch V., Arizona

"Your 12/15/2008 post is evidence that Buffett's principles will always work. The column uses other similar columns (describing public fear in the markets) as though it's news, or evidence of a change in the economic climate itself. There is no news since Buffett's Op-ed, which by the way, precisely said he was not calling a bottom, to dictate the market's direction. The only news, in fact, isn't news either: people are still scared. Sounds like it's still time to be greedy."

- Eric C., Texas

"I have waited patiently to purchase Berkshire Hathaway class B stock. While I missed the exact bottom I was able to buy Class B at 2558. As I also believe in Value investing, my profit thus far since purchasing Hathaway is currently +25% but its been to a high of +38%. So while everyone else has been hammered in the Market I've had enormous returns. Buffett is a class act who's been at this for a very long time and will continue to be a superior investment in these uncertain times.

Now all I wish for Christmas is the price declines again so that I can buy more.

It's truly enjoyable not having to watch the market swings every day just hoping some stock you bought isn't being taken out to the wood shed for a spanking. Its great to see the tide roll out and expose all the naked swimmers! Berkshire Hathaway is far from naked!"

- Richard B.

"Warren has not lost his touch. His timing may be off a bit, but give him 2 yrs and once again you will hear, 'Why didn't I get in when I could.'"

- Bob

"I have not lost faith in Buffett. Now is a great time to be a value investor and a follower of Buffett. Great companies are selling at attractive prices. I think we are now starting to see a separation of people who truly believe Mr. Buffett's value investing philosophy versus people that have just been following him recently because it was popular. Thanks for the opportunity to comment and keep up the blog. I haven't stopped reading it."

- Michael R.

"Short answer, no. He is doing what he has done consistently all his life, buying cheap because he prefers to pay less, rather than more. He knows that markets are very good allocators of resources in the medium to long term (3-5 years plus), but short term they are extremely imperfect (ie volatile) and there are, therefore, many opportunities for those who think this way, do their homework and act accordingly, no matter what the chattering classes may say.

Other than that, and more broadly, WEB stands for a whole bunch of qualities to be admired, not only as an investor, but as a human being. The better he does, the better for decency, common sense, humility and hard work. Compare that to current Ponzi schemes, subprime bailouts, multimillion dollar bonuses and outright thievery, well you get the picture."

- Alan C.

"I personally don’t think that he has lost his touch at all... History has proven that over time, his picks have made him a lot of money. The great investors of the Graham-Dodd era all followed the same principal of buying great companies at discounted prices. No one can predict the future; however my dollar would be with Warren Buffet, because he's the only one with enough cash to get deals done... Everyone said he had lost his touch for not investing in the internet stocks, but he stood by what he believed in and therefore didn’t lose the tremendous amounts of money that everyone else did. Now we have the same naysayers doubting him again, but I have a feeling that none of these geniuses had $64 billion in cash at the first of the year in their bank account, because if they did, they wouldn’t have time to write about Warren Buffett’s shortcomings."

- Bert G.

"I have certainly not lost faith in Mr. Buffett. Everyone thought he had lost his touch at the height of the tech boom and we all know what happened there. The market will swing back and forth and if you can keep your head on straight and not panic, you will profit off of this particular bear movement. Chapter 8 of The Intelligent Investor by Benjamin Graham should be required reading for anyone before they invest."

- John B.

"I have never considered this man to be all that smart. In my opinion, he has been just plain lucky. Therefore, I have not and will not follow his lead."

- H. W. D., Georgia

"Faith is the enemy of a good investor. We probably owe some of our current problems to the use of faith/hope in the investment decision-making process. I can hope for a market rally, but my hope has absolutely no influence on the market.

Rather than making bets on Berkshire, or any other company, based on faith, we need to make bets based on facts and probabilities. Without getting into any detail, the fact is Berkshire owns a great number of stellar companies. There is a high probability that most of those companies will consistently produce adequate returns over time. Further, I find it reasonable to handicap the probability of permanent loss on the derivative positions as low.

Obviously I am making very broad and general statements. But my point is: Everything I have stated can be backed-up by an objective analysis of fact and probabilities. There is not an ounce of faith involved. Do I trust the judgment of Warren Buffett? Absolutely. Would I purchase Berkshire shares based solely on that trust? Absolutely not. But based on the facts, I believe very strongly that Berkshire shares will rise substantially over time.

Disclosure: I am a portfolio manager and the account I manage owns BRK-B."

- Jeremy H.

"We will start being optimistic once the system is corrected. We want to see heads rolling at the SEC and at the audit and accounting companies. It is not acceptable that scandals such as the 'Madoff' can go undetected."

- Claude D., France

"Following the stock since 1980, its book to market ratio has been as high as 2+ times book and until this fall, as low as 1.4 times book. If one would buy when it gets close to 1.6 or less and sell when it gets above 2 times you'll be ahead. Buffett says in his writings that everybody has their own way to determine the stock's 'intrinsic value,' but, over time it should grow in relation to its book value. He also always shows its book value vs. S&P in the front of the annual report. So much to my delight, I have been buying. And when it got to under book value, I had an orgasm."

- Michael M., Nebraska

"There has been a lot of commentary in the general media lately about Berkshire's declining share price. And Berkshire's reduced share price is often used as the basis for questioning Warren Buffett's capability. I think it is important for people to understand that share price is the aspect of Berkshire most out of Mr. Buffett's control (that share price is controlled by 'Mr. Market'). I also think it is important for people to understand that Mr. Buffett measures his own performance not by increases or decreases in stock price but by increases or decreases in book value; just look at the recurring opening sentence of his annual Shareholder Letters. Finally, I find it particularly useful to know that in the year 2000 Mr. Buffett bought back Berkshire shares as the price to book ratio approached 1 to 1. So, as for me, I still have faith in Mr. Buffett and when the price (to book) is right I will gladly put my money where my mouth is."

- John P., Alabama

"'Faith says that just as we know that winter won't last forever, we also know that stocks will eventually bloom again, too.'

I hear this kind of reasoning all the time - a common variation is 'just as the sun wil rise tomorrow . . . ' But it's flawed. The reason why we know that sping will come or the sun will rise is NOT because it happened last time and the time before. It's because there are laws of physics and planetary motion that make it perfectly predictable. So it's not an act of faith, it's just a mathematical calculation.

But there are no scientific laws that we know of governing the stock market. And variations of the phrase 'economists were surprised' (at GDP, oil prices, unemployment claims, manufacturing output, etc) occur regularly in the business press. So really, any assumption about the future course of the stock market is 'faith-based reasoning' at its most irrational. I can confidently predict spring will come. But anyone who confidently predicts anything about the markets is a liar."

- Peter N.

"My faith in Warren is stronger than ever. I love how the critique of his comments have come two (2) months after he made his comments. That timeline flies right in the face of what Warren Buffett has said time and time again that a) he doesn't try and time bottoms and b) timelines aren't months and not 2 years or even 5 years but many, many years.

We are an impatient society. We've proven that time and time again. We want to get rich quick and we want things to be fixed quick. If you can remain patient Warren Buffett and 'his followers' will be rewarded just as they have in the past. It makes me laugh to watch the pundits criticize Buffett's moves after 2 months. It just shows how little they get his investing mantra."

- Mark F.

"Buy and Hold is alive and well. Buffett's problem is style drift and dabbling in markets he doesn't understand like derivatives and commodities. Also, Berkshire was trading at a crazy high multiple. Buffett's success is just as tied to a rise in acceptable average P/E ratios for stocks as it is to his stock picking. His returns are leveraged by P/Es where normal funds can only leverage themselves by borrowing money."

- Craig C.

"Buy and hold investing is dead? Are you kidding me? People who flee this concept believe that companies will never again show sustained growth. If you believe this, then yes, buy and hold is dead. Historically, the longer and deeper the recession (or depression), the longer the period of expansion that follows. Is there a better environment in which to buy and hold? Timing the bottom is always a challenge and if you want to castigate Buffett for missing the bottom, go ahead. I'm holding my Berkshire for the next 10-15 years and am sleeping well."

- Mark C.

"To answer this question, I'll quote Barton Biggs' comment about the Internet bubble. 'It isn't different this time. It's NEVER different this time.'"

- Kitty O.

"I think you put a wrong question. It is no longer a question of faith on Buffet or any other big fish for that matter. What we are seeing is wholesale loot. It is blatant in India because Indian politicians are not as sophisticated in looting. The Hard Working Middle class like us will pay taxes through our noses and would be told all kinds of free tade theories. We feed both the rich and the poor and s**t we can do nothing about it. It is such a shame. Our blood, toil and tear is being forcefully extracted by all these bailouts to save the rich."

- Anand G., United Kingdom

"In 1974 the market was down over 40%. We had inflation, gas shortages, Nixon was being impeached, auto makers were in trouble (it seems like they are always in trouble...) and the Vietnam War was going on. Needless to say, it was a tough period. My Mom went down to a bank in Fort Scott, Kansas and borrowed money to invest in the stock market (I wish she had borrowed more). It took awhile (years) but things eventually starting improving and her investment paid off. Her good training taught me, early on, to follow Buffett’s investment advice. When things are going great I’m just not as interested in the market. And vice versa. So, to answer the question, I’m not losing faith in Warren Buffett or his investment style."

- Rick M., Missouri

"Isn't this what people said in the runup to the dot com crash? That Buffett had lost his touch, he was a has been whose time has passed. Then the dot com bubble burst and he was discovered to be right...again. I wonder what people will say when the economy turns around and the stock market recovers this time."

- Steve

"I've actually picked up more shares in BRK.B over the last few weeks. Remember back in 2000 when Barron's ran the cover story 'What's Wrong Warren?' I think Buffett was vindicated then and history will repeat itself."

- Steve C., Missouri

"With this market the immutable laws of nature have to be suspended. Possibly Obama, Warren's god child, will be able to prevail on the Almighty and stop the sun in the sky so that the financial collapse of our capitalist system can be reversed."

- Charles E.

"I especially enjoyed the comment from doubters that 'Doubt replies that this time, it's different.' Hmmm…haven’t we all heard that before?"

- Carlton G.

"Contrary to what Wall St. thinks, Berkshire had a great 3rd quarter. Perhaps the best in years!!! With a major hurricane hitting a major US city, the stock market falling and a recession, Berkshire's book value increased!!! Compare that to other major banks, brokerages and insurance companies, you must be impressed... Now that Mr. Buffet is beginning to invest Berkshire's cash and treasuries, Mr. Buffet is laying the foundation for many years of accelerated earnings growth. He is deploying low yielding investments to higher returning investments. Finance 101!!!"

- Zado

"If you were invested in stocks this year you lost money. Warren Buffett is always invested in stocks so he lost money, too. But, those who have bet against Buffett in the past, and those that thought time had passed him by, have always been wrong. Ask those that said he was nuts for not investing in technology during the Dot.com bubble. I believe over time Warren Buffett will make you above average returns. The trouble with today's market is no one wants to 'invest,' they all want to play a slot machine, double and triple hedges, buy today and sell tomorrow. It's a shame what Wall Street has become."

- Larry S.

"It's far, far too early to determine whether or not Warren Buffet is going to be right. He's got enough money to scale in before everybody is aware that the bottom has arrived. If, on the other hand, this is actually the end of the world, he's still doing the right thing. As has been said many times before, you can't plan for the end of the world. Maybe more of us would be successful if the media was not pushing such a short term point of view in order to stir up controversy and interest? Everyone is panicked. Deals are to be had. If you've kept your powder dry it's time to make some money."

- Andrew S.

"I for one am fully confident that January will be one of the most volatile months for the DOW. I am also fully confident that Warren Buffet knows what he is doing. If I had the cash to buy a share of Berkshire Hathaway I would pony up right now. Form my point of view the price it is trading at is a hugely discounted price which could produce 100% return in 2 years."

- Jason S.

"Warren Buffet is one of the stronger in terms of management and will likely prevail much better than most. Warren’s approach is simple and has been good advice for many years – BUY LOW, SELL HIGH. Bottom line – Mr. Buffet has NOT lost his touch."

- Ron A., Kansas

"Of course people are losing their faith. They are scared because they are now doubting themselves, because they may not have real conviction (may never have had it to begin with) in their investments. But like Buffett said in his talk to MBA students at UF, if you had bought one share of Coca Cola when it went public in 1919 (I think that is the date) for $40 a share and held it even as it fell to $19 (over 50% loss) and rode it till recent yrs, with re-invested dividends, it would be worth around 5 million."

- Gabriel F.

"I'm not losing faith in Warren Buffett at all. I believe he won't deliver such a scandal/s and underperformance as Mr. Madoff did. It's much better being temporarily down with a portfolio following Buffett's strategy than believing in 'quick rich schemes' chasing performance what, from time to time, so called 'smart managers' urge us to do."

- Armin S., Croatia

"Unfortunately Warren Buffett is 'old school' in a new world. His dated metrics no longer apply. Goodbye Warren, you had a nice run."

- Walter P.

"Rather than harp in and out on Buffett, I think you should change topics or get a real job. Anyone can be a critic (from the sidelines) but it takes real courage to actually 'do' something. Do worry about more posts, just post something interesting."

- Dave S., California

"I have been an owner of Berkshire Hathaway since 1987, and attend the annual meetings every year with my wife. The increase in the share price of BRK over the past twenty years, as well as the free investing lessons learned (from Messrs. Buffett and Munger) at the annual meetings, have rewarded my family in many ways. Our faith in Buffett's wisdom and integrity has been and continues to be 'immense.'

Buffett has never been a market timer, and has made this very clear. He buys great companies at reasonable prices (meaning, with sufficient margin of safety from intrinsic value). In every purchase--whether whole or part of a company--he looks for a margin of safety. When I met him a few years back at the inauguration of a local Star Furniture shop (photo attached, Buffett with my wife and me), he reminded me never to forget Chap. 20--'Margin of Safety'--in Graham and Dodd.

Having said all this, today's conditions are extraordinary. While we still have full faith that Buffett has made recent purchases (including derivatives and positions in GE/Goldman Sachs) with Chap. 20 fully in mind, the fact remains that these purchases could have been made with a much wider margin of safety. Then again, he is not a market timer--and I am optimistic that these purchases carry an adequate margin of safety to make them profitable over the intermediate and longer term."

- Ram T.

"The longer this period lasts the better it will be for Berkshire shareholders. If someone can't see this simple fact they should not be investing. This will be the most exiting time in Berkshire & Buffett's life. Why do you think he told (Fox Business Nework's) Liz Claman he hopes he lives long enough to have Berkshire fall by 50% a couple more times?"

- Rick B.

"I believe that Buffett, and his world-record wealth accumulated by investing – not trading – since the 1950s speaks for itself. The points that he makes about the fact that markets work well over long periods of time but often make no sense in the short run will always be relevant. Today the investment world and media are trapped amongst the trees while Buffett comfortably sits atop the forest. He can see well beyond that which is obscured and murky to most of the rest of us. That is how he got so wealthy in the first place."

- Wayne H., Pennsylvania

"Buffett is still on song. The 'flaw' in his strategy is a predilection for his circle of competence. It means he will never lose over reasonable investment time frames (4 years+). By his own admission he does not 'understand' technology. IP codified in the scaleable and discrete framework of software produces the highest EBITA margins in the history of equity investment. Buffett will not contemplate this space. Ironically, he has a perfect appreciation of 'brand equity' (the intangible/IP of choice in his era).

I commend him for his unassailable investment discipline - his superb and judicious investment discipline will entrench his position as the world's most influential investor, but he will fall in relative terms to the first disciplined fund manager that builds a portfolio of 'entrenched monopoly assets' ('EMA') such as payment solutions (Visa), stock exchanges (NYSE) and search directories (specifically, the post structural change emergents such as Google - not the old, print-based, Yellow Pages cash cows). Buffett will not lose sleep over these missed opportunities - for every EMA there are closely related capital vacuums (all tech hardware producers, biotech sector and mining companies). Buffett knows avoiding land mines is more important than trapping the golden goose."

- David G., Australia

"Buffett is saying the same things today that he said in ... 1972. He and Munger are as giddy as they have been in years about stocks. Do doubters think that they ring a bell as the market is about to boom so we can all get in at bargain prices? Stocks get cheap because people are scared and depressed, LIKE NOW!! Once again, Buffett will be right. Berkshire is a screaming bargain at the current price."

- Thomas S.

"I am not losing faith in Warren Bufett. I am aggressively buying class A shares as the stock drops. The book value of Berkshire and its long term earning power have never looked more optimistic to me. This is a quality company that is only getting more and more powerful.

The truth of the matter is: no one is an investor anymore. Over a 10-year period, Berkshire has always delevered handsomly for its shareholders. Short-term price movements mean nothing provided that it does not go broke. Berkshire may not make huge returns, but it won't go broke. If Mr. Market says Berkshire is worth dramatically less than it is, I couldn't be happier to buy more shares."

- Krishna R.

"Before I stop following Mr. Buffett’s approach to investing somebody has to be smart enough to convince me that Lehman Brothers' involvement in too-risky investments is a good reason to stop drinking Coke for the next 5, 10 or 15 years. Anyone? (I do not own Coke shares).

While I’m not able to get the reason why the current financial crisis should diminish Coca-Cola's potential to grow bigger over the next 5 or 10 years, it took me one second to understand why the value of a good business goes beyond its tangible assets.

Warren Buffett is no prophet: he is just one that after having analyzed things well says words that make sense."

- Simone M., Italy

"I discovered a Forbes article back from 1973 or 1974 that postulated he was crazy to be buying into that market at that time. It is almost a complete carbon copy of what they are saying now and look how Warren has lost it since then. They say history doesn't repeat but it rhymes. So to those of you that have doubts, are fearful, want to sell etc, I say be warned that your fear will serve us well."

- Charles B.

"Classic. This request for comments and the thesis presented in this article reinforces that Buffett's game plan is more intact than ever. Without the dramatization of every piece of daily news provided by the CNBC on-air staff this once in a generation opportunity would not be here for the taking."

- "Riding Out the Storm"

"I have shares of BRKB. If I can't believe in Warren Buffet, how can I believe in the capitalist system? He is a true invester, very sharp, with a great track record. If he fails long term then we are left to the speculators and snake oil salesman."

- Sharon B.

"Faith? It is not about faith. Falling equity prices are good news not bad news. I own Berkshire, Coke, Starbucks, GE, Zara, etc. When one of these stocks go down, I don’t get upset. I know their long term prospects are great, and I look at lower prices as a buying opportunity. Do you get upset if you got gas for your car and two days later it is cheaper?

I do understand why traders and speculators are nervous, however. They buy assets without doing any research on the business model and management of a company. The only gauge on performance is the price of the stock. Therefore when the price of the stock goes down, they figure they made a bad investment.

Investors don’t need faith during these tough (or good) times. Investors need to read the annual report before buying the stock."

- Wilko S., California

"Mr. Buffett is a genius with numbers/money/business. That is his gift in life and he is very, very good at it. He knows what he is doing. He has stated that the market has value in some stocks and whilst he cannot predict a bottom by the exact number, I would be surprised if he committed his money and his reputation, if he was not very confident in his comments...

Mr. Buffett is my hero and I would listen to him any day. So should everyone. Does any one really think they have the upper hand of an absolute genius like him?"

- Jonathan P.

"Smart? Obviously and amazingly so. Insightful? Of course. Lucky? Oh, my, yes.

I enjoy CNBC very much, and watch it every morning, and see it on the internet at work. But Warren Buffet is no messiah, and shouldn't be considered as one. Buffettwatch? Spare me. Sounds a lot like Brittanywatch or Bradwatch: long on celebrity, light on content.

The annual Haj to Nebraska has turned into a media/pop-culture event, not a sober, analytical meeting of cold-eyed investors. A festival, complete with all the distractions of a P.T. Barnum event. Ice Cream! Hot Dogs! Soft Beds! Come one, come all! Watch Warren oraculate on the yen-carry trade, and its implications on the forex markets! Hear Warren speak on the auto bailout! The Federal Reserve! Global Warming! Whales! Post Chaebol Korean Industrial Policy! Tune in to hear!

The Rock-Star treatment of this admittedly amazing investor makes me wonder why it is we must augment his investing success with a veneer of celebrity. Buffett is now just as slavishly drawn to the stage lights as the CNBC reporters are to his 'star power.'"

- Mark W., Texas

"It is premature to say that Buffett's governing principles of empire building are wanting or that he needs a new crystal ball. Nor should the effects of the short sellers be overrated. These are but blips reflecting economic realities and do not a trend make."

- Charles H.

"It is not a matter of faith but a matter of reason. I owned shares of Brk.a & b for the past years in the belief that the reason behind Buffett's investments was sound and over the years will pay off. I believe in his Philosophy regarding investments, which means reason prevails, not faith."

- Carlito M.

"There's no reason to lose faith in him. His investments this year are consistent with his core investing philosophy and it's worked for him so far. However, as transparent as he is, why not short his company's stock if it is apparent revenue will decrease in the short-term."

- Lukas A.

"The doubts currently being voiced about Warren Buffett's investment approach--and the recent hammering of Berkshire Hathawy's stock--say more about the prevailing trader mentality than it does about the actual soundness of his fundamental principles...

Anyone who would discard Buffett's ideas now, in this time of deleveraging, financial distress, and general confusion overall, had simply never fully adopted the philosophy in the first place. Fifty years of guidance and experience from one of the greatest investors the world has ever seen should not be discarded because of difficulties experienced in the short term. To paraphrase Buffett himself, if your principles change along with your circumstances, they aren't principles."

- Brian W., New York State

"I went with the 'experts' during the dot com or tech 'irrational exuberance' era at the advice of my stock broker and was severely burned. I should have listened to Warren Buffet. I am now buying Berkshire on every dip and plan to do so for the long haul this time. Warren Buffet is still here, and much wealthier I might add then Egghead.com or even Merrill Lynch. I would say Berkshire is a buy, buy, buy. Booyah Jim Cramer."

- Tom S., Florida

Current Berkshire stock prices:

Class A: [US;BRK.A 93198.99 -1301.01 (-1.38%) ]

Class B: [US;BRK.B 3101.0 -98.00 (-3.06%) ]

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Monday, December 22, 2008

SEEKING ALPHA: Buffett's 300% Return on a Bid He Lost

Mark Riddix December 21, 2008 | about stocks: CEG / MDPWK.PK

Warren Buffett appears to have failed in his attempt to buy Constellation Energy Group (CEG) for 4.7 billion dollars. MidAmerican Energy (MDPWK.PK), Buffett’s company, agreed to purchase CEG for $26.50 a share in September. Constellation Energy terminated this agreement Thursday and accepted an offer from Electricite De Franc (EDF) for 4.9 billion dollars. EDF will purchase 50% of Constellation Energy’s nuclear power holdings and allow CEG to remain an independent company.

I took particular interest in this transaction because I owned stock in Constellation Energy and they are my hometown utility company. You would think that Buffett would be upset about being outbid for Constellation Energy. Think again. Buffett will walk away from his attempted acquisition of Constellation Energy with a 300% return on his investment.

Buffett will receive 418 million dollars in cash, 175 million in termination fees, 460 million in CEG stock and he gets his 1 billion dollar investment back. He will also earn an additional 140 million in interest over the next year while awaiting repayment of his investment. Buffett stands to make over 1 billion dollars on his original investment in less than four months. That is a return of 300 percent on an annual basis.

The brilliance of Warren Buffett is his ability to win in just about every investment that he makes. He buys distressed companies that are selling well below their true value. Buffett has a unique ability to see opportunity where others see calamity. This explains Buffett’s investment of 5 billion dollars in preferred stock and 5 billion dollar in warrants exercisable at $115 in Goldman Sachs (GS). And Buffett’s 3 billion dollar preferred stock investment in General Electric with 3 billion in warrants exercisable at $22.25. Buffett invested in GE and Goldman at a time when they were in desperate need of capital.

Buffett was derided in October for his declaration that he was investing in US companies when others were pulling out. He has been putting money to work while others have fled for the safety of U.S. Treasuries. Time will tell if Buffett’s thesis is correct. Warren Buffett’s recent investment purchases may look risky right now but as history shows you shouldn’t bet against him.

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Saturday, December 20, 2008

ASSC PRESS: Constellation, MidAmerican tell PSC deal is off

By ALEX DOMINGUEZ , 12.19.08, 12:12 PM EST

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Attorneys for Constellation Energy Group Inc. and MidAmerican Energy Holdings Co. told Maryland utility regulators Friday that their deal has been called off.

A Constellation attorney also briefed the Public Service Commission on a bid by France's EDF for half of the company's nuclear energy unit.

Attorney Deborah Jennings, who represented Constellation at the hearing, said EDF is a world leader in nuclear energy and would be a "boon" to Constellation, which is seeking to build a third nuclear power plant at its Calvert Cliffs site in southern Maryland.

Jennings noted that unlike the MidAmerican deal EDF would not have control over Constellation, which would maintain control in the critical areas of safety, security and reliability.

"It's sphere of influence will be the nuclear power plants," Jennings said, adding the deal does also call for EDF to acquire non-nuclear plants from Constellation if the Baltimore-based company needs to raise cash.

PSC Chairman Doug Nazarian said he was interested in hearing "what does that get them," aside from revenues from the nuclear power unit, adding later the commission would also have to examine its jurisdiction over the deal, which is structured differently than the MidAmerican offer.

Constellation said Wednesday it will sell half of its nuclear power business to French state-controlled nuclear power company EDF for $4.5 billion. That deal scuttled a $4.7 billion offer from a unit of Warren Buffett's Berkshire Hathaway (nyse: BRK - news - people ) for all of the company.

Baltimore-based Constellation Energy Group (nyse: CEG - news - people ) Inc. had agreed to a bid by MidAmerican Energy Holdings Co. (otcbb: MDPWL.OB - news - people ) in September. The offer by the Des Moines, Iowa, company came after Constellation's shares plummeted amid liquidity concerns. Electricite de France SA, Constellation's largest shareholder, complained the offer shortchanged the company.

Jennings said the company expects approval from other agencies could take six to nine months. The attorney said those agencies include the federal Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, the Federal Trade Commission, the Committee on Foreign Investment and the New York Public Service Commission. The deal would also be subject to scrutiny under the Hart-Scott-Rodino Act, Jennings said.

Nazarian asked how soon the commission could receive initial documents detailing the agreement, which Jennings said could be provided by next week.

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BLOOMBERG: M&T Bank Buys Provident Bankshares for $401 Million

By Linda Shen

Dec. 19 (Bloomberg) -- M&T Bank Corp., the lender whose second-largest shareholder is billionaire Warren Buffett’s Berkshire Hathaway Inc., agreed to buy Provident Bankshares Corp. to add deposits in the mid-Atlantic region.

The all-stock deal, valued at $401 million, will give Buffalo, New York-based M&T an additional 143 branch offices and $6.4 billion in assets, the bank said in a statement today. M&T is offering 0.171625 of its stock, or $10.50, for each share of Baltimore-based Provident, 37 percent more than the 20-day average share price.

“At M&T we tend to simply focus on cash flows and the value of the franchise we see,” Chief Financial Officer Rene Jones said in a conference call today, commenting on the deal’s premium. “We actually think the value of the cash flows here are tremendous.”

The acquisition follows Capital One Financial Corp.’s Dec. 4 announcement that it would buy Chevy Chase Bank FSB of Chevy Chase, Maryland. M&T Bank last month received preliminary approval to sell $600 million in preferred shares to the U.S. Treasury as part of a recapitalization program for banks.

M&T believes the stock transaction “was a pretty prudent decision,” and that its capital levels are “sound,” Jones said. He added M&T would be “open” to raising capital before the acquisition closed. Provident in November sold the government a $151 million stake.

The transaction comprises $352 million for Provident’s common stock and $49 million for preferred equity, said the bank. The deal is expected to be completed late in the second quarter of 2009 and add $4.6 billion deposits and $4.3 billion in loans, M&T said. The acquisition price is based on M&T’s shares Dec. 16 closing at $61.18, the bank said.

M&T, which is 6.1 percent owned by Berkshire, fell $3.76, or 6.3 percent, to $55.96 at 11:45 a.m. in New York Stock Exchange composite trading while Provident soared $3.41, or 59 percent, to $9.21 in Nasdaq Stock Market trading.

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BALTIMORE EXAMINER: Buffett nets windfall from failed Constellation merger

By Aaron Cahall
Examiner Staff Writer 12/19/08

For the Sage of Omaha, parting from Constellation Energy Group could be very sweet sorrow.

Despite a bevy of headlines casting Warren Buffett as the jilted party in a merger deal between his MidAmerican Energy Holdings Co. and Constellation canceled Tuesday, the famed investor is in line for billions in parting gifts.

Buffett's Constellation consolation prizes include $593 million in breakup fees, the return of his $1 billion investment in the company at 14 percent interest, and 20 million shares, or 10 percent of the company.

Buffett rode to the rescue of Constellation in mid-September when concerns over its available cash and credit, coupled with general turmoil in the financial markets, nearly brought the company to bankruptcy.

The man described by Gov. Martin O'Malley at that time as a "white knight" will stay in the picture as one of the company's biggest stakeholders.

"It's not like he's getting thrown to the curb," said Paul Justice, who covers Constellation for Chicago-based investment research firm Morningstar. "If he had the chance to do 20 of these deals in the next year, he'd do every single one."

Such is the power of cash when credit markets tighten -- according to regulatory filings, no one but Buffett could offer Constellation the immediate cash infusion it needed to survive. The company will now pay Buffett a heavy price for that pseudo-bailout, just as they gave away half of their nuclear business on Tuesday to French firm Electricite de France to remain an independent company.

"They gave away a significant chunk of their future earnings potential," Justice said. "They've been provided with sufficient liquidity for the next few years. [But] they gave up a lot, that's the dynamics of the liquidity crunch, when you need money today you have to have it."

But the sheer amount of Buffett's windfall might violate state law, according to state Delegate Pat McDonough. McDonough put the total value of Buffett's takeaways from the failed merger at approximately $4 billion, which he said violates statutes forbidding a provider of gas and electric from jeopardizing those services.

"The money that [Constellation is] taking in is almost canceled by the money going out," he said. "This issue now becomes center stage É because this is placing the future of the company in jeopardy."

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