Chris Lau - Seeking Alpha

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Sunday, February 22, 2009

Mr. $62B's Company

Warren Buffett's Berkshire Hathaway
Is Warren Buffett losing his touch? Investors and the media have started to take notice of Buffett's performance for his holding company. CNN Money noted that the company is at a 5 1/2 year low.

One investment mantra advocated by Buffett is to "buy and hold...and hold forever." I do believe this attitude is required for intelligent investors, but am strongly against it for the time being. The enomity of problems in de-leveraging still has not played out, the investment rules governing valuation have been temporarily irrelevant (due to the monetary intervention to the markets), and there is little ability for anyone to remotely attempt any form of forecasting.

History: During the Internet bubble mania in 1999-2000, many investors (sounded loudly through professional analysts and the media) questioned Buffett's investment "old" style. They ignored the risks of high valuation and thought Buffett's rules (Benjamin Graham's teachings are discussed in his books "Security Analysis" and "The Intelligent Investor.")

Berkshire has some similarities to GE, in that it has exposure to both the insurance and the banking sector.

From CNN Money:
  • "Much of the worry over Berkshire stems from derivative contracts that could force it to make big payments if the Standard & Poor's 500 and three other stock indexes were to be lower at various times between 2019 and 2027. Berkshire has said it could owe as much as $37.04 billion, in the unlikely event that the indexes were to fall to zero."
  • Exposure to Wells Fargo & Co, where it is the largest investor, American Express Co and U.S. Bancorp - fall in value of financials would justify a fall in Berkshire
Analysis:
I created a group called "Intelligent Investing" on kaChing.com. The group's purpose is to apply and to discuss the investment method from Benjamin Graham's "The Intelligent Investor." It now has over 120 members. It might seem odd to be critical of Buffett, a disciple of Graham and the second richest person in the world.

Questioning Buffett's investment positions and actions is akin to a grasshopper teaching its master. Is one right to wonder if Buffett is losing his touch this time around?

I believe that investors reject the buy and hold approach at this time, because a defensive position is required. Defense is best obtained by preserving assets through a high cash position. Buffett hates cash. Graham did too. Cash rots with inflation. Yet, a high cash position would enable the investor to seize great opportunities.

I also believe that the financial sector is too dangerous to hold right now.

Opportunities have continued to present themselves each time the stock market declines. The investor just ought not to confuse opportunities in great companies with opportunities filled with risk.

On kaChing

kaChing hosted an "API" (technical jargon that is an abbreviation to "Application Programming Interface") Garage Event on Saturday. Slide Show on Technical Developments at kaChing:
kaChing's API garage event
What do these slides mean? kaChing has built a decisively large user base. It has 363,318 users. As such, it is embracing the social networking structure and "web 2.0." How? It is reaching beyond its stock trading application as a stand-alone website or as an application within facebook.

In plain English, it means that kaChing has expanded its reach to grow far larger than where it is at now.
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