Quote of the week

By yearend, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.

— Warren Buffett

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15 years ago

Not bad Warren but see if you can all pick the quote of next year’s week from among this lot from Mogambo(hint it starts with Gah..)

“I thought I was still asleep and merely dreaming when I opened up Barron’s and saw that the earnings of the S&P 500 have dropped to US$28.75, which is down from last week’s $45.95, which is down from last year’s $78.80.

In case you were wondering, this level of earnings is down to where it was in 1995, and at that time the S&P 500 was selling for about $450, versus today’s $770, and which makes the price-to-earnings soar to an almost-unheard-of 27! A P/E of 27! Hahahaha! So you can see why I thought I was dreaming!

This evaporation of earnings also probably explains why the S&P 500 index is at $770.05, down from last year’s $1,353.11, meaning that if you had bought the index last year, you have lost almost half your money in nominal terms, and you have lost ever more when calculated in inflation-adjusted terms, as the dollar has lost buying power in the last year…

..the fact is that it is worse than that, because the USA, with its $14 trillion economy, has a federal government that is going to spend, over the next year, all the money in their usual $3 trillion-plus budget, but also another $2 trillion or so over the next year – $5 trillion in government spending, at a cost of $3 trillion in new debt, all in a $14 trillion economy! Gahhhhh! We’re freaking dooooooooomed!

I did not mention that there are only about 100 million non-government, non-taxpayer paid workers in the US, which means that there are only 100 million workers who can make a profit with which to pay taxes, which means that $5 trillion in government spending is a staggering $50,000 for Every Freaking One (EFO) of those non-government, non-taxpayer paid positions! And you think THAT is going to work out for the best? Hahahaha!”

15 years ago
15 years ago

Also from Buffett’s 2008 Letter to Shareholders:

… the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that Price is what you pay; value is what you get. Whether were talking about socks or stocks, I like buying quality merchandise when it is marked down.

For those who think that government interference (especially that of the Clinton Administration) was responsible for the sub-prime loans debacle, 35% of Berkshire subsidiary Clayton Homes’s customers are classified as sub-prime but no purchaser of its mortgage securities has ever lost money and year-end loan delinquency rate was 3.6%.

Buffett explains why on page 11.

There’s more: why credit insurance of municipal bonds creates moral hazard; the problems in dealing with derivatives contracts:

Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: Its not just whom you sleep with, but also whom they are sleeping with.

But as always, despite the economic climate, Buffett is in a positive frame of mind. For attendees at the Berkshire annual meeting:

On Saturday, at the Omaha airport, we will have the usual array of NetJets aircraft available for your inspection. Stop by the NetJets booth at the Qwest to learn about viewing these planes. Come to Omaha by bus; leave in your new plane. And take along with no fear of a strip search the Ginsu knives that youve purchased at the exhibit of our Quikut subsidiary.