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Message: Response to Buffett Question
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Bull, I greatly appreciate your latest messages. What are your thoughts on Buffet's latest forecast that the economy should see recovery in the next couple years? (from a yahoo report, could be bogus)
Colonel Sanders
Colonel Sanders
Colonel Sanders,
First off, take a look at this piece from Richard Russell's Remarks:
April 29, 2010 -- Faye (That's his wife) and I had dinner last night with a well-known architect and builder. This gentlemen has been very successful in his business, and he pointed out his plans for a great deal more building. He said he was not having any trouble in getting loans from banks, and, in fact, banks were vying for his business. As I listened to this fellow I thought of my father's words about construction during the Great Depression. My dad told me, "They always get enthusiastic at the top. I've never known a builder who didn't go broke."
My dinner companion told me that he expected rates to stay low, and he asked me what I thought. I told him that the bull market in bonds was over, and that bonds were now in a bear market. That means that there will be a long period in which interest rates will work themselves higher. The builder listened, but I could tell that he didn't want to hear what I was saying.
My dinner companion told me that he expected rates to stay low, and he asked me what I thought. I told him that the bull market in bonds was over, and that bonds were now in a bear market. That means that there will be a long period in which interest rates will work themselves higher. The builder listened, but I could tell that he didn't want to hear what I was saying.
This is the way I feel about Buffett. I agree that he has unusual and extraordinary business acumen. If there is a sixth sense involving such matters, he has it. I can also tell you this, however: Great fortunes have been lost not for lack of intelligence of for lack of business acumen, but for the inability to make an adjustment when business, economic or political environments change. Buffett has existed for the great majority of his business life in one sort of environment, that being a gradual (as opposed to hyper-inflationary) inflationary environment. The dollar has been slowly devaluing over the past 80+ years, and interest rates have stayed low for the past 40 years. This is the ideal environment to make money in a variety of industries that Buffett has done well in. Granted, he still had to make a lot of the right choices, but he still was operating in a certain environment. Selling popsicles in Saudi Arabia is not a difficult endeavor. In Antarctica is might be a little bit more problematic. The environment is important. Let me reemphasize here, I don't want to take anything away from Mr. Buffett. I do consider him an investing genius. But Sir Issac Newton was also a genius. Read this:
Joseph Spence wrote that Lord Radnor reported to him "When Sir Isaac Newton was asked about the continuance of the rising of South Sea stock… He answered 'that he could not calculate the madness of people'."[3] He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men".[4] Newton's niece Catherine Conduitt reported that he "lost twenty thousand pounds. Of this, however, he never much liked to hear…"[5]This was a fortune at the time (equivalent to about £3 million in present day terms[6]),
The problem now for Buffett is not that he's not smart, it's that he's in too deep involving his present thinking. He's made his fortune one way, and the idea that that way might be coming to an end is something that I'm not sure he's ready to tackle psychologically. It's the same problem Hitler and Alexander and Napoleon had, i.e. how to stop and change the direction of a course of action that had achieved great success for them in a certain way. Buffett is a certain type of thinker. I've read three of his biographies. He certainly was not the embodiment of Aristotle's "Magnificent Man" or what others might refer to as a complete Renaissance man. He was a so so father and a miserable husband. He's very good at doing a few things right, and fortunately in the environment he was born into, those few things pay very, very well. He's really no different in many ways than say someone like Barry Bonds, very deficient in many other aspects of his life, but can hit a baseball better and farther than 99.9999% of humanity and therefore used to make a lot of money for it.
I have always had the idea that Buffett was a man of integrity, and that he understands honesty and integrity and has always been a very good picker of men. Andrew Carnegie shared this same quality, perhaps one of the most valuable any human being can possess. Still, when Andrew Carnegie was 75 years old, he had spent his entire life making steel. I don't know how well he would have done or accepted a world where steel, all of a sudden, was a non-significant part of daily life. By the same token, I don't know how Buffett will respond to an environment where the U.S. Dollar is no longer a significant part of daily life. This, I think, is coming within the next few years.
Also, Buffett might suffer a bit from what Alan Greenspan, once he achieved great fame, suffered from. He, Warren, is a living legend, and I'm sure he knows it. He's popular and everyone wants to talk to him. If he were, all of a sudden, to come out and say, "Sell stocks and buy gold," everyone would shun him and call him an idiot. I know what this is like. When I sold my entire Intel and Cisco positions in March of 2000 no one wanted to talk to me anymore. Up until then, I was the big stock market guru. All the doctors I was working with wanted to talk to me and get my input. Once I sold and stated that the end was near, no one cared whether I lived or died. It's nice to be loved and admired, especially when you are an old man as Warren is. Nobody wants to be called a party pooper.
So what I'm saying is that Warren Buffett is not God. I've done well following his philosophies in the past, but I am not following them now. Not only that, but I think anyone who follows his investing philosophies now and into the near future will suffer tremendously. No big deal for him. If he loses 3/4 of his fortune, he's still a billionaire. It is a big deal for you and me, however. Our children will be living in this world long after Warren Buffett is dead.
Comments from another of Russell's letters:
Follow the money -- When it comes to money, even master investor Warren Buffett will sell out. Before a commission set up to investigate the housing mess, Buffett stated that the rating agencies shouldn't be blamed for the housing collapse. "I was wrong on it too," said Warren. Of course, Buffett's Berkshire Hathaway owns 13% of Moody's, a rating agencies. Gosh Warren, you're so smart that if you missed the housing bubble, nobody can blame a rating agency for goofing on the housing picture. Buffett is also one of the big-name bulls who advocates buying stocks now.
Anyway, I don't see any recovery in the economy, and I think anyone who does is smoking something, including Warren Buffett. Sorry, Warren.
All the best, Bull
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