The worst investment decision Warren Buffet ever made

Or: On Outperforming Warren Buffet

Warren Buffet is hailed as the best investor in the world. His net worth as an investor is generally regarded as proof.  I started 100% DIY investing in March 2006 when we transferred our remaining holdings from our full-service investment adviser to our discount brokerage. We are currently standing at 31% over book value. In the same period, BRK-A, Buffet’s holding company has gone from trading at US $90,625 to yesterday’s close at $103,000. That is a 14% gain. Does that make me twice as good an investor as Warren Buffet?

An article in Canada’s Globe and Mail recommends that individuals invest like Buffet. There are many articles of this kind floating around; Buffet is considered a prophet of investing, the Oracle of Omaha. I’ve also shared here some of my tips of investing and there is some overlap between the way the Buffet invests and my style.  Yet in the commentary section of the Globe and Mail article I wrote:

I cannot invest like Warren Buffet. He breathes and the market reacts. It is harder for him to buy shares on the open market too, since if he were to let it be known that he wanted a billion dollars of shares of something, the price would go up uncontrollably. That’s why he often buys preferred shares which aren’t available to guys like me. He can’t invest like me either. Unlike Buffet, whenever I buy something the price seems to go down immediately. I buy very small stakes in companies that I think have promise or which have good yield. But it’s too small for anyone to pay much attention. I like it that way.

So perhaps comparing myself to Warren Buffet is a bit of bravado on my part, a testosterone-filled pissing match. It’s not comparable at all because Buffet is investing billions and I’m like an ant crawling around the big toe of an elephant. And to be fair, there have been times when Buffet’s done much better. I’ve been lucky during this recession, I’ll admit it.

But there is a fundamental difference between Buffet style and mine. He is buying America whereas I’m shorting the US dollar and buying Canada–a strategy that may back fire according to Roubini; but I don’t think it will because all the trends in the US government until the 2010 election are inflationary. Ken Boessenkool in the Globe and Mail writes about Canada’s dollar, the loonie:

… perceptions of future investment returns on a country-to-country basis are often affected by large shifts in fiscal policy. Bad fiscal policy – in the form of unsustainable deficits and debts – will cause investors to expect increases in future taxes and lower rates of return. In that case, the relative attractiveness of that country as a place to work and invest will fall, driving down economic growth. In response to poor fiscal policy, a falling currency can provide the automatic stabilizer to lower growth rates resulting from rising deficits and unsustainable debts.

And this is exactly the picture we are seeing south of the border. Barack Obama has put the United States on a debt and deficit path that is far worse than Canada experienced in the early 1990s, when The Wall Street Journal called Canada an “honorary member of the Third World” and our dollar was flirting with historic lows.

Moveover, our world-view is informed by biblical conservatism. The Bible is a good guide to investing; it affirms risk taking, generosity, unselfishness and not allowing money take hold of you (I am of the opinion that selfish people make bad investors).  It also warns about indebtedness. In my view, the US government’s profligate debt-based spending is a path towards poverty that is immoral and self-destructive. This kind of behavior is not affirmed in the Bible at all.

Warren Buffet knows it is bad in the US. But perhaps he is in denial about the single worst investment decision that he ever made:  his ill-informed endorsement of Barack Obama for President. Ill-informed because had he paid attention to Obama, he would have known that he was a radical leftist–perhaps it is not too far to say that BHO is a Marxist given his background. He would have known also that BHO knows nothing about economics and has never been an executive of a company or any other entity which would have qualified him for becoming the CEO of the United States. The man who is famous for researching companies before risking billions failed to do his research into BHO and it is literally costing Berkshire Hathaway billions in market capitalization.

Righteous Investor

What does the Bible have to say about economics and investing?  How should a Christian approach the question of business, investing and money making?

Jesus warned against serving two master’s, God and money.  But then some of his parable praise the wise investor (e.g., the Parable of the Talents) or the shrewd steward.  Jesus said that the poor were blessed, but then the Bible also recognizes the blessing of wealth.

This blog will explore these biblical issues, in the context of contemporary events.  The authors are Christians and they are investors; they strive to be righteous investors.

India buys 200 tons of gold

India bought 200 tons (32,000 ounces) of gold today from the IMF at a price of $6.7 billion. This should be an ominous sign for the deflationistas.  The price of gold spiked to US $1083 per ounce, a new high.

It has become clear to me too that one reason that the US has avoided inflation in the past is that so many governments and individuals hold their wealth in dollars.  John Mauldin wrote in his newsletter (October 30, 2009), “Catching Argentinian Disease” regarding real estate transactions in Argentina:

Interestingly, the dollar is still the real medium of exchange. I was told by several people that if you want to buy a house for half a million dollars, you bring the physical cash to the closing. One person counts the money and the other checks the paperwork and title. Argentina has the second largest hoard of physical dollars in the world, only exceeded by Russia. Is it any wonder they are concerned with the value of the dollar?

What if the international community suddenly lost confidence in the dollar and began to sell its reserves in favor of other currencies (Euros, Canadian loonie), gold and other commodities?  So far we’ve seen a trickle effect: the US dollar is slowly losing value.  But imagine the little Dutch boy with his finger in the hole of the dam, and if he suddenly removes the finger and the dam could burst; once confidence is lost the world markets could be flooded with US dollars in a day.  This seems to me to be a real risk to America and it is why the current Democrat controlled Congress and Office of the President are so immoral and irresponsible in their deficit spending.  What happens when no one wants to buy US debt?  They will have to raise interest rates.  But the US government can’t raise interest rates because already 40 cents on every tax dollar services the national debt.  If the interest rate was raised by a few cents, the US would be like the sub-prime borrowers who could no longer pay their mortgages when interest rates go up, because imagine if for every tax dollar 60 cents went to paying for debt.  That is untenable.  The problem will spiral out of control.  So the US will, as Mark Faber and others have predicted , monetize the debt (this occurs when the Federal Reserve buys US treasury notes) and hyperinflation will set in.  I expressed my fears about this on January 19, 2009, and in terms not too different the Financial Post’s Jonathan Chevreau (on May 27, 2009):

Over the past year, I’ve occasionally mused mostly in jest that the way the United States has been printing money to combat the financial crisis seems to rival Robert Mugabe’s Zimbabwe. All this by way of wondering how it is that the result of running the presses has been rampant hyperinflation in Zimbabwe, yet the U.S. so far seems to have dodged the inflation bullet.

The only thing that can save us is for conservatives to take back Congress in 2010 and the White house in 2012.  The security of the USA and of the world depends on it.

Today at Powerline blog, Paul Mirengoff says that to consider Obama a fool is the charitable explanation of some of his foreign policy.  The same is true of current economic policy.  Rush Limbaugh and others believe that he is intentionally trying to destroy the economy so that he can implement a radical agenda, as Rahm Emmanuel has famously said, “You never want a serious crisis to go to waste.”  Such a sinister intent is consistent with some things that we know about Obama’s background.  But for the moment, I will reserve judgment.

Interestingly, the dollar is still the real medium of exchange. I was told by several people
that if you want to buy a house for half a million dollars, you bring the physical cash to the
closing. One person counts the money and the other checks the paperwork and title. Argentina
has the second largest hoard of physical dollars in the world, only exceeded by Russia. Is it any
wonder they are concerned with the value of the dollar?