Warren Buffett seemed to take it on the chin last week.
In fact, he's been hammered for a couple of months now.
First came the annual
Berkshire Hathaway (NYSE: BRK-B)
shareholders meeting, the annual Woodstock for Capitalists and
Buffett love fest held each May, where the Oracle of Omaha was
Goldman Sachs (
. Berkshire lent Goldman $5 billion in 2008. The storied Wall
Street firm, with which Buffett has had a long love affair, has
come under scrutiny by the Securities and Exchange Commission (
) for its part in creating an ill-fated mortgage deal. Questions
about it dominated the daylong shareholders meeting.
The latest indignity was his appearance before Congress last week
-- under subpoena, no less -- where he was compelled to answer
questions about his stake in
Moody's Investor Service (
. The company, which Buffett said he asserted no control over
(true) is under scrutiny for its role in favorably rating the
subprime mortgages that imploded.
Some said Buffett, who said Moody's did what everyone else did and
missed the subprime dangers, as did he, came off as detached,
uninformed and talking out of both sides of his mouth. This
performance seemed to stand in stark distinction to an earlier
appearance on the Hill. Then, in 1991, Buffett, as chairman of
Salomon Brothers, a post he briefly held, defended it from an
inquiry into a rogue trader's handling of U.S. Treasuries. "Lose
money for the firm, and I will be understanding," Buffett
forcefully and memorably said. "Lose a shred of reputation for the
firm, and I will be ruthless."
What has happened to Warren Buffett? Is it time to put him out to
Anyone who knows the story of Warren Buffett knows that when he
digs in his heels, he defies short-term conventional wisdom and
looks like a genius in the end.
Consider his lecture at Sun Valley, Idaho, in 1999. This annual
gathering, orchestrated by Allen & Co., a boutique investment
bank , brings together some of the best technology, media and
communications minds in the world. In 1999, as the tech bubble was
ballooning, audience members were flying high, and Buffett was a
Buffett told them they were nuts. He said the "New Economy " idea
was foolish. His implications, though rather more pleasantly
phrased, indicated to many of those in attendance that their
business models were short-sighted -- and doomed.
Buffett lost a few friends and a lot of public standing. Everyone
thought he was crazy for sitting out the tech bubble. He looked
nuts: The market continued to soar, and the tech-heavy Nasdaq
reached an apex of 5,048 in March 2000.
Then it stopped. And fell like a stone. In fact, the market lost $5
trillion in market cap from 2000 to 2002. The Nasdaq lost -53.3% as
Berkshire shares tacked on +29.7%.
Buffett was right, and ended up richer.
Or consider a Wall Street scandal that almost no one remembers, the
fascinating story of Tino De Angelis. His Allied Crude Vegetable
Oil Co. had a neat little scheme going. Ships would come into port
loaded mostly with water with only a little oil on top, and
inspectors would certify the load , which was then put into storage
tanks. De Angelis used the phantom oil as collateral for loans.
Occasionally, inspectors would come out for a look to certify that
the collateral was in place. Tino would show them a tank and they'd
fill out their forms, then he'd take them to lunch while he pumped
the oil into another tank, which they would then certify as being
full, too. He hoodwinked them for quite some time.
It was none other than
American Express (
. And its losses from the "salad oil" scandal caused the stock to
lose half its value. A cagey investor from Omaha took notice and
loaded up on AXP stock. He promptly said that the matter would be
taken care of no matter what it cost so as not to harm the value of
the storied American Express name. The year was 1963, the scandal
was overshadowed by the Kennedy assassination, and the investor, of
course, was none other than Buffett. His current 151 million-share
stake in AmEx cost $1.3 billion but is now worth $6.1 billion, a
gain of +370% as of Dec. 31, 2009. The dividend alone is $111.6
million a year.
Buffett was right, and ended up richer.
Now, what's going to happen this time?
History repeats itself, but not exactly. It's tough to make Buffett
materially richer, but the odds are that the performance he gave
Congress was exactly what he wanted to give, for his reasons. And
this reasoning that has guided Buffett for the past 40 years has
served him very well and made a lot of his investors phenomenally
As it stands, Berkshire is a steal at current levels (around $74 a
share in Friday trading), with room to run easily back to its
52-week high of $83.57 and beyond. That would represent a +18% gain
that outpaces even the best performer on the Dow Jones Industrial
The Boeing Co. (
Warren Buffett has not lost his mojo. He still has his touch. Just
as he pays no attention to the short-term performance of his
companies and focuses instead on their long-term domination, so too
will he ignore the interim bleating in the blogosphere and maiming
in the mainstream media.
The outcome, if history is any guide, will be the same.
Buffett will be right, and he'll grow richer.
The lesson of this is that it's important to see what the market
fails to recognize. And while Warren Buffett made money over the
long run by recognizing value, today's investors can put themselves
in a position to capture standout returns by focusing on growth.
There are dozens of opportunities to locate companies that have an
edge that the market has not yet discovered. When Wall Street
finally stumbles upon these winners, they can surge overnight.
These fast-track picks make Buffett's long-term gain look puny by
That's the focus of my new
. And I'm offering a sneak peak on June 15. Click here to learn how
you can join an exclusive webcast detailing a handful of these
picks and showing you how these stocks can put your portfolio on
the fast track.
Editor: Government-Driven Investing, Fast-Track Millionaire
Disclosure: Andy Obermueller does not own shares of any security
mentioned in this article.
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