Tortoise VS Hare: Tortoise wins again

Long VS short, there just aint no contest!

Yeah, I know, I know, he is going to bang on again about the merits of long term investing over short term.

Absolutely, it is a good subject and important if you want to make money well into the future. Invest in a good business, it will have its highs and lows performance wise regardless of its share price and the odds are better than a short term punt that you will be happier in the end.

I am motivated to write this column because of my sustained interest in Warren Buffett and his investment style; buy a great company for a good price and never sell it.

Recent developments for Buffett have seen his Berkshire Hathaway company lose money, lose share price and Berkshire losing its high credit rating a few days ago.

That has seen his critics lather at the mouth to come out and critique his recent moves to buy stocks and spend money rather than do the opposite I presume.

One virulent critic has been Doug Kass and he has been shorting Berkshire stock over the last year.

But surprize, surprize being the short term thinker he his today he came out and did a complete 180 degree flip flop, Doug is buying Berkshire stock for his long term draw!

This from Doug:

"When conditions change, as they appear to be doing now -- see this morning's Wells Fargo (WFC Quote) news -- opinions must change, and opportunities must be embraced. This is especially true in the case of Berkshire Hathaway as the considerations that led to my shorting of Berkshire Hathaway's shares at around $145,000 a share have now reversed, and, with the shares today trading under $90,000 a share, I have begun to accumulate a long position in Berkshire Hathaway".

Doug could have bought Berkshire at $74,100 in November and again in February 2009 at $73,677.30.

But if you looked at Buffett's move when "his" Wells Fargo bought the basket case Wachovia last year, as a long term investment, you might have had the fortitude to buy Berkshire stock thinking Well's management might know what they were actually doing.

Kass even advocated buying Wells Fargo last November, but not Berkshire Hathaway stock, which owned around a 7% stake in the company according to filings last December. Wells is now one of Americas largest banks.

Berkshire has been the owner or part-owner of many global brands and added more recently.

Kass could have had a stake in all of these cheaply for a long term recovery but only picked one.

The purchase of debt or stock in Harley Davidson, Tiffany, Goldman Sachs, General Electric and a number of other smaller and some larger purchases over the last 12 months also look to pay off as the economy inevitably recovers in the long term.

Oh how the tortoise has taught the hare a lesson, and more to come I would think.

Thanks for your indulgence of my self-indulgence once again.

Recent Share Investor Reading

• The NZX continues to lose ground with retail investors
• 2008-2009 KFC sales figures mislead investors
• Sweetheart deal for Fletcher Building's friends make small investors sick
  
• What 11 years of Stockmarket investing has taught me
• Emotional Refuse

• Discuss this topic @ Shareinvestor.net.nz

Related Amazon Reading


The Four Filters Invention of Warren Buffett and Charlie Munger by Bud Labitan
Buy new: $29.65 / Used from: $26.48
Usually ships in 24 hours


c Share Investor 2009

Emotional Refuse

Discuss this topic @ Shareinvestor.net.nz

Further to my criticism in February of recent detractors of Warren Buffett's moves to "buy up US stocks", Steve Jordan from The Omaha World-Herald adds another dimension to my argument for me when he quotes me back contrasting my contention that Warren knows his business VS Doug Kass who reckons Buffett is dead wrong in his long-term investment approach:

Bloggers are fighting over whether Warren Buffett's recent financial plays have been wrong or wise. Darren Rickard of the Stock Market & Business Blog sought to refute Doug Kass of RealMoney Silver and TheStreet.com, who said Buffett's strategies are "stale" and don't work these days. Kass cited the declining value of several investments Buffett has made since last fall, plus the 38 percent drop in Berkshire Hathaway's own stock price. Rickard said such criticism is shortsighted and that critics "haven't given Buffett's big bets a time to play out." "Warren Buffett has faced similar stock market and economic meltdowns before, bet huge sums while stocks were affected by these meltdowns and always managed to come out smelling of roses," Rickard wrote. Steve Jordan, Omaha World-Herald Feb 8, 2009

I missed this in my February diatribe, Doug Kass points out that Buffett's Berkshire has suffered a 38% drop in share price but what stock hasn't in this market?

Share price isn't always a reflection of real value. Like Kass' view of the stockmarket, this is short term thinking and it is wrong. Stock prices will fluctuate for manifold reasons other than concrete results and the Berkshire Hathaway stock price has been murdered far below its recent results, mostly for emotional rather than actual reasons.

The same is true of many listed stocks in New Zealand.

Emotion has departed from reality and taken some stocks down the road less traveled towards dead mans curve.

There are bargains out there, Warren Buffett is buying them and commentators like Doug Kass are doing their best to make him look bad in the short-term.

I am willing to admit that the great Sage of Omaha could be wrong this time but on the balance of probability it would be a foolish man who would bet against him.

Just be patient, Buffett has spent the last 80 years doing just that and his results speak for themselves.

Recent Share Investor Reading

• Shareinvestor.net.nz - The Home for New Zealand Stockmarket discussion
  
• A Hickey in Bernard's Advice
• Nuplex rights decision a dilemna for shareholders
• Share Investor's 2009 Stock Picks: Looking Back
• Dead Cats and Vicious Bears
• Long VS Short: Freightways Ltd

Related Amazon Reading


How to Pick Stocks Like Warren Buffett: Profiting from the Bargain Hunting Strategies of the World's Greatest Value Investor by Timothy Vick
Buy new: $15.61 / Used from: $5.90
Usually ships in 24 hours


c Share Investor 2009

Short-sighted critics of Warren Buffett wrong

There has been alot of criticism of Warren Buffett and his recent spending spree over the last 4 months or so and how that (so far) hasn't paid off.

One person in particular, Doug Kass, has said that Buffett's strategy is stale and This is the end of Warren .

Now Doug Kass has money riding on this by short-selling. He has bet that stocks will go down from here-and he is probably right-while Buffett has been buying up large for the long-term shot.

Everything from Burlington Northern Railways, BYD Auto, Goldman Sachs , General Electric and many more in between, Warren Buffett has been like a kid in one of his See's candy stores with 90% off the prices.

Now I am probably the wrong person to read if you wanted to read unbiased stuff about Warren Buffetts "buy good stocks for a good price and hold forever" strategy but I happen to agree with the great investor and follow that strategy as well-my portfolio is similarly down, well...duh!

Where I think Kass and other critics of Buffett have been shortsighted-and the word shortsighted is the key here-is that they haven't given Buffett's big bets a time to play out-the fact that Buffett has a long-term view seems to have completely escaped the critics!

Buffett's big spending spree began earlier in 2008 when he made deals related to the Mars/Wrigley Merger, the Anheuser-Busch/Inbev marriage and increases in his Kraft shareholdings, then continued past the September 2008 stockmarket meltdown when he made the quite audacious statement to anyone who would listen, in an Op-ed piece that he wrote in the New York Times, to "buy American" stocks, because he thought they were "cheap".

So far this has affected Buffett's Berkshire Hathaway stock price and his other company holdings in a serious way, he has lost billions in wealth as a result and all in a very short time-frame.

But, and it is a big but, Warren Buffett has faced similar stockmarket and economic meltdowns before, bet huge sums while stocks were affected by these meltdowns and always managed to come out smelling of roses and manifold more times wealthier.

After a 5 year absence from the stockmarket from 1969 because he thought stocks in that period were not cheap, he made a reappearance in 1974 just before the turn of a bear market, when he declared in a Forbes interview:

How do you contemplate the current stock market, we asked Warren Buffett, the sage of Omaha, Neb.

"Like an oversexed guy in a whorehouse," he shot back.

Buffett then proceeded to buy up cheap stocks in good companies like he had some kind of billionaire fever. He did it again after the 1987 crash and after the late 1990s tech meltdown.

To be sure even Buffett himself has said the current economic and market situation is like an economic Pearl Harbour and we haven't witnessed anything like this since WW2, so he hasn't got his head completely up the far reaches of his vast wallet.

The only thing that worries me slightly about his recent behavior is that he has been uncharacteristically vocal, giving lots of interviews and making numerous public comments like he never has before.

In one recent interview with Susie Gharib from PBS Nightly Business Report (which incidentally runs on Auckland's Triangle TV at 4.30pm weekdays and is very good) Buffett answered this question from Susie and I would have to agree:

I mean what is your most important investment lesson?

WB: The most important investment lesson is to look at a stock as a piece of business not just some thing that jiggles up and down or that people recommend or people talk about earnings being up next quarter, something like that, but to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business you don’t know enough to buy it. And if you do know enough to evaluate it as a business and its selling cheap, you buy it and don’t worry about what its doing next week, next month or next year.

SG: So if we asked for your investment advice back in 1979 back when Nightly Business Report first got started, would it be any different than what you would say today?

WB: Not at all. If you’d ask the same questions, you’ve gotten the same answers.

Indeed, time to be greedy when others are fearful.

I would bet on Buffett's side long-term. Lets see what Doug Kass has to say in 5 years.


Recent Share Investor Reading

Scam Watch: List of helpful Investor tools
Long vs Short: Fisher & Paykel Healthcare
Housekeeping: Google Translate


Related Links

Everything Warren Buffett
2007 letter to Berkshire Hathaway stockholders
10 Basic Buffett questions to ask before investing


Related Amazon Reading


Security Analysis: The Classic 1934 Edition by GRAHAM & DODDS
Buy new: $37.80 / Used from: $29.93
Usually ships in 24 hours


c Share Investor 2009