"It's never paid to bet against America.... We come through things, but it's not always a smooth ride....This is an economic Pearl Harbor."
-- Warren Buffett, "Dateline" interview on NBC (Jan. 18, 2009)
Early in 2008, I took a controversial and negative view on Berkshire Hathaway's (BRK.A Quote - Cramer on BRK.A - Stock Picks) stock. During the late summer, I profitably covered a short I put on Berkshire at approximately $140,000 per share.
Based on the recent deterioration of Berkshire's investments, I might have been premature. (Berkshire's common now trades for under $89,000 a share.)
In the last 60 days, Berkshire's investment portfolio has plummeted in value. Buffett has lost over $4.5 billion alone on his 300-million-share investment in Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) since Dec. 1, 2008, and another $1 billion loss on U.S. Bancorp's (USB Quote - Cramer on USB - Stock Picks) shares; both stocks have been halved in less than two months. His most recent investments in Burlington Northern Santa Fe (BNI Quote - Cramer on BNI - Stock Picks), General Electric (GE Quote - Cramer on GE - Stock Picks) and Goldman Sachs (GS Quote - Cramer on GS - Stock Picks) have deteriorated markedly in value from his cost basis.
Equally important, I have repeatedly uttered the notion that Berkshire's large derivative position -- namely, short puts on the S&P 500 -- was evidence of investment style drift. Regardless of that view, Berkshire has now likely recorded a nonrealized loss in excess of a $10 billion on the index short put position. A loss on that scale, whether realized or unrealized, is large even for Warren Buffett.
In 2008 and (so far) 2009, The Oracle of Omaha has been wrong; it has paid to bet against America.
Moreover, the U.S. "economic Pearl Harbor" has humanized and brought down to earth many of the smartest investors in the world (e.g., Warren Buffett), as well as the entire private equity universe, many well-regarded hedge funds and investors (e.g., Marty Whitman and Bill Miller), and some masters of the universe in residential and nonresidential real estate, among others. Many industrialists, including Aubrey Kerr McClendon, Kerkor "Kirk" Kerkorian, Sheldon Adelson and Sumner Redstone, have been thrown under Mr. Market's bus, as have financiers Dick Fuld, James Cayne, John Thain and even Bank of America's (BAC Quote - Cramer on BAC - Stock Picks) Ken Lewis.While the downfalls of a widening list of investment, financial and industrial icons have historically been associated with a market and economic bottom, the lesson remains the same: The average individual investor should continue to err on the side of conservatism in a market that provides a wonderful setting for trading but a not-so-exquisite setting for investing. Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
Nov. '07: Kass warns current market top is doomed to go into a death spiral. Oct. '08: he calls a market bottom but, amid the gloom, sees signs of intermediate recovery presenting investor opportunities. Get his forecasts first at RealMoney Silver. Try it FREE.
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