As you might have guessed by now, I'm not a big fan of Warren, because while he manages to keep the appearances of a man full of honesty and integrity, he's quite actually the opposite, and it's very well illustrated in the numerous posts on my blog.
Anyway, here's the latest about his investments:
Feb. 27 (Bloomberg) -- Warren Buffett, who bought about $2 billion in bonds of power company Energy Future Holdings Corp., said the investment is at risk of losing all its value after natural gas prices fell.
Buffett’s Berkshire Hathaway Inc. wrote down the debt by $390 million last year, following a $1 billion impairment in 2010, the billionaire said in his annual letter to shareholders posted Feb. 25 on the company’s website. The market value of the investment was $878 million at the end of December, he said.
“If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value,” wrote Buffett, Berkshire’s chairman and chief executive officer. “Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our writedown.”
Buffett, 81, invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought by KKR & Co. and TPG Capital in the largest leveraged buyout. The private-equity firms wagered that gas prices would rise, pushing up the price for wholesale electricity.
Instead, gas prices plummeted amid an expansion of drilling in the U.S., putting pressure on power providers that operate in unregulated markets where states don’t ensure utilities make a certain level of profit.
The $1.87 billion of 10.25 percent bonds from Energy Future’s Texas Competitive unit due in November 2015 have tumbled to 29 cents on Feb. 24 from 62 cents on the dollar a year earlier, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.Interestingly, the last two editions of the ElliottWave Financial Forecast have a piece on Warren Buffett as well. Here are some quotes.
First from the Jan edition:
Still, here at the very tail end of the Great Mania, Buffett’s bull-market aura appears as strong as ever. Interestingly, however, his stock, Berkshire Hathaway, is not doing nearly as well. In fact, since the middle of 1998, the front edge of the great stock market peak, Berkshire is up just 2.3% per year. Compared to many stocks and money managers, this performance isn’t bad. But over the same span, risk-free U.S. Treasury bills returned approximately 3.28% annually.
Meanwhile, changes in Buffett’s investment approach hint that the next phase of the bear market will be extremely hard on his portfolio as well as his public image. One of the most important shifts is his subtle drift away from the bottom-up, value-oriented stock picking that produced his fortune. In recent years, Buffett has adopted more of a top-down, macro approach to investing. In November, a financial web site, MarketOracle.co.uk, highlighted the change with this comment: “He’s said repeatedly the United States won’t see a double-dip recession—and he’s putting huge money behind that forecast.” In the third quarter of 2011, Berkshire Hathaway invested $23.9 billion in stocks, the most for one quarter in at least 15 years. “He sees something and it’s big,” says an investment manager. “He’s broadly diversifying across numerous industries,” notes another. This change is out of character with the fundamental, company-specific analysis that made Buffett the icon he is today. We believe it also embodies one of his more insightful investment adages: “Wide diversification is required only when investors do not understand what they are doing.”
Over the years, Buffett also assiduously advised against stock-market timing. As the Dow made its all- time high in 2007, however, he began establishing a multi-billion dollar exception to this rule when he sold put options on the S&P 500, FTSE 100, Euro Stoxx 50 and Nikkei 225 stock indexes. The European options pay off for Buffett only if these particular indexes are not lower than their 2007 levels near the times of the expiration dates over the next 7 to 15 years. It’s not a short-term bet, but it is a timing play that surely would have offended the sensibilities of his mentor Benjamin Graham, who emphasized the importance of individual company fundamentals and called market timing “ungrounded folly.” Of course, if our global market outlook pans out, Berkshire will be buying back these options at much higher prices than it sold them.
Another position that carries Buffett away from his own investment philosophy is his recent decision to buy back Berkshire Hathaway stock. Previously, Buffett derided buybacks, saying that through them companies tend to overpay “departing shareholders at the expense of those who stay.” He made the comment in March 2000, which turned out to be pretty prescient, as it happened to be a high point of a then-record buyback frenzy and the end of the Grand Supercycle bull market).[...]
In November, Buffett revealed that he had broken another of his golden rules by purchasing a big block of IBM shares over the course of the prior eight months. Previously, he never bought the shares of a technology stock for reasons that are described in The Tao of Warren Buffett:
Warren makes it a point to understand each and every business in which he invests. It’s perhaps the greatest key to his success. If he doesn’t understand something, he doesn’t invest in it. This tenet has famously kept him from investing in high-technology companies—he doesn’t understand what they do.Apparently, at the age of 81, Buffett finally “gets” technology.
The potential for a big sell-off must be large, because the January 23 cover of Time magazine features all- out optimism by one of the most heeded of investment sages. The cover features a picture of the man himself, hand cupped to his eye, peering into the future. The full headline is “The Optimist—Why Warren Buffett is bullish on America.” According to the magazine cover indicator, this constitutes an important “sell” signal for the overall stock market. [...]
another aspect that indicates a very late juncture is that this public icon is altering his behavior and investment discipline in ways that align him with, rather than against, the crowd. The Time cover is an example, as Buffett cooperated and posed in various settings for the magazine. In earlier times, the Oracle of Omaha shunned the limelight. “Buffett keeps a low profile,” noted a 1985 New York magazine profile.
As recently as 2006, he excommunicated an adopted granddaughter for appearing in a documentary in which she commented on the Buffett family and her famous grandfather. In recent times, Buffett lifted the veil of secrecy by granting frequent interviews, announcing recent investments on CNBC and even jumping into the political arena as the centerpiece in an effort to raise taxes on the wealthy. [...]