Warren Buffett, ‘Something Bad Will Happen’

More than 27,000 people filled Qwest Center on a cloudy Saturday on the fifth day of May. All of them came to hear two remarkable investors, Warren Buffett and Charlie Munger. The duo sits before the assembled throng and tirelessly answer questions put to them. In two parts, this extended Q&A runs about five hours.

There are the inevitable grandstanders with their political statements and nutty questions. Then there are the sappy odes of hero-worship. ‘Oh, Mr. Buffett, thank you so much! You are my hero! My wife is pregnant and we are naming our son Warren after you!’ I silently wished the Earth would open and swallow him whole. No such luck.

On the housing market woes, Buffett noted how Berskshire’s housing-related businesses are getting hit. Unlike many overeager investors today, who feel compelled to run into burning buildings by buying flaming housing-related stocks on the theory that the worst is over, Buffett offered a contrary view: ‘My guess is that it continues for quite a while.’

No elaboration on how long is ‘quite a while.’ But these guys think in glacial terms. Long-term is a lifetime. Therefore, ‘quite awhile’ could mean at least ‘years.’

On the private equity bubble – which involves so-called private equity firms raising huge pools of money and then borrowing a lot more to buy whole companies – Buffett noted a great flaw in the scheme. Private equity firms have a ‘great compulsion to invest quickly.’ That way, they can go out and raise another fund and keep the fees coming in. Basically, private equity firms are paid for activity, not results. And the nature of the business means that we won’t know who is successful until many years have passed. Buffett said the ‘score card is lacking.’

On fears of a crash or meltdown or bad things happening in the market, Buffett offered wise words: ‘Something bad will happen, but you could go back at anytime in the last 100 years and say the same thing… you can freeze yourself out indefinitely.’

Every investor must play the hand he is dealt.

Chris Mayer
for Markets and Money

Chris Mayer
Chris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998, Mr. Mayer's essays have appeared in a wide variety of publications, from the Mises.org Daily Article series to here in Markets and Money. He is the editor of Mayer's Special Situations and Capital and Crisis - formerly the Fleet Street Letter.

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