The 2008 Chairman’s Letter from Warren Buffett is a must read for every individual investor. Not only because there is the self-confession, some jokes and the classic aphorisms but also an assessment of the world economy worth contemplating carefully. And there is the proof that even world class investors as Buffett can have it wrong. As the Sage of Omaha admits.
At the end of 2008 Berkshire’s entire equity portfolio had a market value of 49 bln USD and a cost basis of 37 bln USD.
Last Friday the market value has fallen back to 37 bln USD equaling the cost basis.
A sobering observation.
We also retain following muses:
"As we view GEICO's current opportunities, Tony (Nicely) and I feel liketwo hungry mosquitoes in a nudist camp. Juicy targets are everywhere."
And on the financial crisis
"As the year progressed, a series of life-threatening problems within manyof the world's great financial institutions was unveiled. This led to adysfunctional credit market that in important respects soon turnednonfunctional. The watchword throughout the country became the creed I saw onrestaurant walls when I was young: "In God we trust; all others pay cash."
And on 2008
"During 2008 I did some dumb things in investments. I made at least one
major mistake of commission and several lesser ones that also hurt. I will tell
you more about these later. Furthermore, I made some errors of omission,
sucking my thumb when new facts came in that should have caused me to
re-examine my thinking and promptly take action. "Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
And on derivatives
"Derivatives are dangerous. They have dramatically increased the leverageand risks in our financial system. They have made it almost impossible forinvestors to understand and analyze our largest commercial banks and investmentbanks. They allowed Fannie Mae and Freddie Mac to engage in massivemisstatements of earnings for years. So indecipherable were Freddie and Fanniethat their federal regulator, OFHEO, whose more than 100 employees had no jobexcept the oversight of these two institutions, totally missed their cooking ofthe books."
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At the end of 2008 Berkshire’s entire equity portfolio had a market value of 49 bln USD and a cost basis of 37 bln USD.
Last Friday the market value has fallen back to 37 bln USD equaling the cost basis.
A sobering observation.
We also retain following muses:
"As we view GEICO's current opportunities, Tony (Nicely) and I feel liketwo hungry mosquitoes in a nudist camp. Juicy targets are everywhere."
And on the financial crisis
"As the year progressed, a series of life-threatening problems within manyof the world's great financial institutions was unveiled. This led to adysfunctional credit market that in important respects soon turnednonfunctional. The watchword throughout the country became the creed I saw onrestaurant walls when I was young: "In God we trust; all others pay cash."
And on 2008
"During 2008 I did some dumb things in investments. I made at least one
major mistake of commission and several lesser ones that also hurt. I will tell
you more about these later. Furthermore, I made some errors of omission,
sucking my thumb when new facts came in that should have caused me to
re-examine my thinking and promptly take action. "Additionally, the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
And on derivatives
"Derivatives are dangerous. They have dramatically increased the leverageand risks in our financial system. They have made it almost impossible forinvestors to understand and analyze our largest commercial banks and investmentbanks. They allowed Fannie Mae and Freddie Mac to engage in massivemisstatements of earnings for years. So indecipherable were Freddie and Fanniethat their federal regulator, OFHEO, whose more than 100 employees had no jobexcept the oversight of these two institutions, totally missed their cooking ofthe books."
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