On CNBC Friday morning, Warren Buffet said that he bought additional shares in either Wells Fargo or American Express. So, should we pile into financial stocks?
I’m not. I got burned trying to ride along with Buffet in the summer of 2006 when he bought several million more shares of USG. Take a look at Buffet’s ridiculously horrid timing on this USG chart (click to enlarge):
Almost chopped in half!
USG, which makes Sheetrock and other building materials, is obviously suffering during this housing depression. Not only did Buffet misjudge the duration of the housing slump, but he misjudged it by years.
I’m sure USG will do fine when the next house-building cycle begins, but when will that be? Judging by the historic level of vacant homes, I can’t imagine that it will be anytime soon.
Will Buffet be just as wrong about banks as he has been about housing? Well, when you consider that banks and housing go hand-in-hand with much of the banking business revolving around mortgages and construction loans, I think that there is a pretty good chance that Buffet will be just as early in his banking investment as he was with USG.
Didn’t he say in April that the credit crisis was just about over? IMO, Warren has just as much stake in maintaining confidence in the banking system since he too is one of the players. As a novice trader, one of the things I’ve learned is that people who are seemingly very intelligent, knowledgeable, and savvy can lose amazing amounts of money. This bear market is taking out the smart guys this time around. The banking system is INSOLVENT. I trade the charts while keeping this in mind. (long LEH puts)
I’ve learned is that people who are seemingly very intelligent, knowledgeable, and savvy can lose amazing amounts of money.<<
not only that when we have someone we know is “intelligent, knowledgeable, and savvy” telling us it’s raining while we get pee peed on, we know they are a liar!
I don’t think Buffet will be buying JPm for one. I posted my reasons behind my JPM short in the previous blog article.
Isn’t Buffet the one that said do not buy stocks in industries that you are not familiar with?
I know he is big on insurance and such. But he claimed he wouldn’t go after Google or apple as he has no idea of tech stocks.
Oh and Buffet Says Fannie Mae, Freddie Mac `Game Is Over’
http://www.bloomberg.com/apps/news?pid=20601087&sid=ar3Dc8YAkiIQ
I don;t know why he would get into financials if he said game over for one.
Let the game end then start the new one. But hey the guy is a billionaire. We have to find our own trading styles and that depends on how much initial capital we have.
Just my few pennies.
-K
http://www.investingfreak.com
The sentiment that the crisis is behind us is spreading, based on the assumption that the worst of the credit defaults are known and priced in. On the other side is the argument that the August bounce has been unspirited and feeble, held up on low volume, temporarily masking further weakness for distribution purposes.
If this is a short-covering rally that is turning into a distribution rally, it may go on for another week or so before it caves in and revisits the July lows. The timing is perfect: make a new low in September/October, and then rally hard after the elections. We need to go further down to get a good run in the late fall.
Warren Buffett YTD – 18.0%
http://www.clusterstock.com/2008/8/that-awesome-warren-buffett-cnbc-interview
I can’t find anything that indicates he’s buying bank stocks. On the contrary, as I recall from reading the transcript, he advised against buying banks.
I saw Buffett participating in a roundtable discussion after a screening of I.O.U.S.A., and I lost all respect for his credibility. Doesn’t mean he may not be a nice guy, but his arguments were both easily shot down by the other participants and seemed as if he hadn’t even watched the movie that just played (in which he is interviewed BTW).
Bob,
I saw Buffet tell Becky Quick that he had recently bought additional shares in either Wells Fargo or American Express. He would not say which one, probably because he wants his followers to bid them both up.
Matt
In the interview he refused to comment on LEH even if pressed… I don’t know for what reason he bought additional shares, but to me the whole thing read like a “don’t buy” advice on financials. Which he had given even on his BKH shares politely but clearly at this year’s shareholders meeting. The business fundamentals just don’t work for his business right now.
Hilarious is that he points out, that Fannie and Freddie have to fail because of conflicting goals – and later he speaks about the Fed having conflicting goals but he omits the Lincoln quote there. The interviewer should have pressed him on that one…
Bob + K,
Thanks for the links.
Yerk,
I agree. Here are the quotes:
BECKY QUICK: When people start looking around to find the next potential Bear Stearns, Lehman Brothers is the name that comes up again and again. Should people be concerned about what’s happening at Lehman?
Mr. BUFFETT: I don’t think it’s appropriate, really, to talk about
financials.
QUICK: Financials, in particular, banks.
Mr. BUFFETT: No. I think that–I really think that’s inappropriate to talk
about them.
QUICK: Do you think that’s caused…
Mr. BUFFETT: I have no problem talking about Fannie and Freddie because the government stands behind them.
My intepretation of this is that he believes the financials are in similar trouble to the GSE’s, but he doesn’t want to comment and cause a panic.
Buffet is a once in a lifetime investor. The world will never see anyting like him.
But this business cycle will hurt him badly, but not as bad as those very intelligent people on Wall Street and in the hedge funds. They might get wiped out.
And then we have us mortals who study the economic business cycle caused by loose monetary policies…………….
Buffett ceased being an “investor” in the late ’60s to early ’70s at which time he became the chairman of a mega financial holding company. The last “investing” he did was during the ’70s bear market and secular bear of the ’60s-’80s.
Buffett by his own incessant admissions over the decades “buys companies”, that is, the income stream, buildings, management talent, other assets, etc.
Moreover, Berkshire’s total assets are no more than a third or so in equities (often less over the years).
Buffett is not an “investor” in the context of the typical person; neither does he “invest” other people’s money for a fee as do sludge fraud or mutual fraud mismanagers.
Therefore, few if any mutual fraud mismangers or individual investors can “do what Buffett does”, as they do not own companies outright and earn income from the companies revenues/profits.
I hope he bought Wells Fargo. He will pay a price. Wells Fargo has been playing games with their numbers to look good. They went from 120 days to 180 days before loan is foreclosed. So their numbers last quarter looked better than every one else. Eventually they will pay the piper!
[...] August 24th, I wrote Buffet Buys Banks? a couple of days after I saw Warren Buffet tell Becky Quick on CNBC that he had increased his stake [...]