Buffett was too early calling a bottom
By Daniel at 27 October, 2008, 11:26 pm
Page last updated at 08:17 GMT, Monday, 27 October 2008
European markets have opened sharply lower following hefty falls in Asia that saw Japan’s Nikkei index falling 6.36% to its lowest close since 1982.
The FTSE 100 in London was trading down 4.8%, the Cac 40 in Paris fell 5.5% and the Dax in Frankfurt was down 3.5%.
It follows hefty falls on Friday with investors continuing to fret about the depth of the global slowdown.
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EARD ON THE STREET
OCTOBER 27, 2008
Even the Oracle Didn’t Time It Perfectly By PETER EAVIS
Maybe the Oracle of Omaha failed to see how bad the market was going to get.
Warren Buffett, Berkshire Hathaway’s chief executive, has won plaudits for some canny deals in recent weeks, including a Berkshire unit’s purchase of Constellation Energy Group. But an unnerving pattern is also emerging: Mr. Buffett looks to be committing his capital too early. On some bets, waiting might have gotten him better terms or more attractive entry prices.
Warren Buffett, CEO of Berkshire Hathaway, takes part in a conversation on leadership and the economy at The Women’s Conference 2008 in Long Beach, California, Oct. 22, 2008.
This is not a cheap gibe based on the S&P 500 being down nearly 7% since Oct. 17, when Mr. Buffett wrote in the New York Times that he was gobbling up U.S. stocks. Any assessment of Mr. Buffett’s record would be skewed if it focused too much on timing.
But Mr. Buffett has expressed regret that he didn’t do certain deals differently, including an investment in Gillette in 1989. And he might wish he could tweak some recent ones, including two derivatives bets that could show sizable paper losses when Berkshire reports third-quarter results.
With one, Berkshire significantly increased its exposure to credit-default swaps. The company wrote contracts predominantly providing default protection on certain junk-rated corporations in North America. Berkshire more than doubled its notional exposure on these CDS to $8.8 billion between the end of 2006 and the middle of this year.
Berkshire says the CDS agreements have features that cap losses and the company is receiving large payments for writing them. Still, Berkshire booked a $490 million mark-to-market loss on these CDS in the first quarter, which narrowed to $136 million in the second quarter. Given the deterioration in the credit markets, the third quarter hit on them could be large.
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