Warren Buffett — Critical Investor

 

Billionaire investor, industrialist and philanthropist, Warren Edward Buffett, and his thoughts on:

Vox populi

A public-opinion poll is no substitute for thought.

Overthinking

Beware of geeks bearing formulas.

Derivatives

Derivatives are financial weapons of mass destruction.

Suits

I buy expensive suits. They just look cheap on me.

Market Relativity

In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.

Fear and Uncertainty

You know, people talk about this being an uncertain time. You know, all time is uncertain. I mean, it was uncertain back in – in 2007, we just didn’t know it was uncertain. It was – uncertain on September 10th, 2001. It was uncertain on October 18th, 1987, you just didn’t know it.

Americans are in a cycle of fear which leads to people not wanting to spend and not wanting to make investments, and that leads to more fear. We’ll break out of it. It takes time.

Media

The smarter the journalists are, the better off society is. For to a degree, people read the press to inform themselves-and the better the teacher, the better the student body.

Wealth

I always knew I was going to be rich. I don’t think I ever doubted it for a minute.

Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.

Hindsight

If past history was all there was to the game, the richest people would be librarians.

Risk

Risk comes from not knowing what you’re doing.

Risk is a part of God’s game, alike for men and nations.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

Taxes

If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further. But I think that people at the high end – people like myself – should be paying a lot more in taxes. We have it better than we’ve ever had it.

Investors

We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’

Contrarian Thinking

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Bad business

When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

Diversification

Wide diversification is only required when investors do not understand what they are doing.

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George Soros — Critical Speculator

Billionaire financier, businessman, philanthropist, and advocate of liberal idealism, Gyorgy Schwartz, more popularly known as George Soros, and his thoughts on:

Open Societies

A full and fair discussion is essential to democracy.

An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others.

I chose America as my home because I value freedom and democracy, civil liberties and an open society.

Markets and Social Needs

I think there’s a lot of merit in an international economy and global markets, but they’re not sufficient because markets don’t look after social needs.

Markets are designed to allow individuals to look after their private needs and to pursue profit. It’s really a great invention and I wouldn’t under-estimate the value of that, but they’re not designed to take care of social needs.

Markets and Uncertainty

Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.

Markets are constantly in a state of uncertainty and flux and money is make by discounting the obvious and betting on the unexpected.

Philanthropy

I’m not doing my philanthropic work, out of any kind of guilt, or any need to create good public relations. I’m doing it because I can afford to do it, and I believe in it.

War on Terror

Bush’s war in Iraq has done untold damage to the United States. It has impaired our military power and undermined the morale of our armed forces. Our troops were trained to project overwhelming power. They were not trained for occupation duties.

Marijuana

Just as the process of repealing national alcohol prohibition began with individual states repealing their own prohibition laws, so individual states must now take the initiative with respect to repealing marijuana prohibition laws.

Who most benefits from keeping marijuana illegal? The greatest beneficiaries are the major criminal organizations in Mexico and elsewhere that earn billions of dollars annually from this illicit trade – and who would rapidly lose their competitive advantage if marijuana were a legal commodity.

The criminalization of marijuana did not prevent marijuana from becoming the most widely used illegal substance in the United States and many other countries. But it did result in extensive costs and negative consequences.

Testing

The financial markets generally are unpredictable. So that one has to have different scenarios… The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.

Fallibility

Once we realize that imperfect understanding is the human condition there is no shame in being wrong, only in failing to correct our mistakes.

The people currently in charge have forgotten the first principle of an open society, namely that we may be wrong and that there has to be free discussion. That it’s possible to be opposed to the policies without being unpatriotic.

Contrarian Thinking

The worse a situation becomes the less it takes to turn it around, the bigger the upside.

The United States

We are the most powerful nation on earth. No external power, no terrorist organization, can defeat us. But we can defeat ourselves by getting caught in a quagmire.

We must recognize that as the dominant power in the world we have a special responsibility. In addition to protecting our national interests, we must take the leadership in protecting the common interests of humanity.

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Drunk Market Lemmings

Good piece on Seeking Alpha about market correlations: these days individual fundamentals don’t seem to matter as much as general market trends:

We used to be a market influenced by lemmings, but now they run the market. Remember two weeks ago? Every asset up… get out of the way. Risk is ON! Five weeks ago? You own stuff? Loser! Risk is OFF! 12 weeks ago? Everything must go up! Last week? Sell sell sell… everything!

The measured correlation of markets is around 80%, which indicates investing is more a game of follow the leader than picking opportunities.

Read on here.

And for anecdotal proof, here’s how the price of crude oil is correlated with other commodities: like alcohol:

LONDON (Reuters) – Britain’s financial regulator has fined and banned a former broker for manipulating oil prices by buying more than 7 million barrels while on a drinking binge.

The Financial Services Authority (FSA) said it fined Steven Perkins, a former employee of PVM Oil Futures Ltd, 72,000 pounds ($108,000) and banned him from working in financial services for at least five years for carrying out trades without the authority of clients or his employer.

Perkins’ unauthorized trading pushed the price of Brent crude oil futures up to almost $73.50 a barrel — at that point the highest level prices had hit on the InterContinental Exchange in 2009.

The rest of the insanity here.

It’s an absurd game we play.

“Sent from my BlackBerry® wireless handheld”

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Going For The Jugular

A brief glimpse at those last few minutes leading up to Soros’ successful campaign against the British Pound as covered by The Atlantic.

Posted with WordPress for BlackBerry.

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George Soros On Bubbles And The Financial Crisis

Fareed Zakaria interviews Quantum Fund manager George Soros on CNN to hear his take on the ongoing financial crisis.

Soros, promoted the term “Reflexivity” especially as it applies to economics: which describes the tendency for market trends to become self-fulfilling and propagate itself until it eventually becomes unstable and collapses on itself. He is also a staunch critic of “Market Fundamentalism” which is the belief that markets self-regulate and tend to equilibrium, which is far from what is observed in real life: markets bubble and crash. In this interview he shares some of his insight regarding bubbles and crashes, and how the present political and financial system allows these phenomena to occur with regularity.

He describes bubbles as resulting from misconceptions, which can continue longer than people expect, but eventually misconceptions are reversed dramatically. The misconception in today’s crisis is over-leverage of the housing bubble which eventually gave way to the present economic crisis.

Unlike other critics such as Peter Schiff and Jim Rogers, Soros supports government intervention to regulate markets, since he believes that the notion that markets “self-regulate to equilibrium” is a fallacy. However, similar to skeptics like Nassim Taleb, Soros rejects any notion that markets and the future can be predicted with any accuracy since the future is always in flux depending on the actions of the present.

Soros’ distinguished track record in his successful Quantum Fund has been largely due to his uncanny ability to anticipate market bubbles and resulting panics.

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Understanding Peak Oil and its Implications

Oil, Smoke and Mirrors is a documentary about the concept of Peak Oil production and its implications on economics, geopolitics, and financial markets. This film is interesting viewing in light of the recent surge in the price of oil following the subprime crisis, and the current cratering of Oil futures following the recessionary fears in the US, UK, and Europe.

Oil Smoke & Mirrors offers us a sobering critique of our perceived recent history, of our present global circumstances, and of our shared future in light of imminent, under-reported and mis-represented energy production constraints. Through a series of impressively candid, informed and articulate interviews, this film argues that the bizzare events surrounding the 9/11 attacks, and the equally bizzare prosecution of the so-called “war on terror”, can be more credibly understood in the wider context of an imminent and critical divergence between available global oil supply and increasing global oil demand. The picture “Oil, Smoke & Mirrors” paints is one of a tragically hyper-mediated global-political culture, which, for whatever reason, demonstrably disassociates itself from the values it claims to represent. While the ideas presented in this film can at first seem daunting, it’s ultimate assertion is that these challenges can indeed be met and perhaps surpassed if, but only if, we can find first the courage to perceive them.

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Market Emotions and Sentiments

Here’s a popular S-Curve about market emotions:

The idea behind this graph is to implement “contrarian investing” or betting against the crowd. The markets, being an expression of investor emotions, have a tendency to overshoot the underlying economics that they are supposed to represent.

However, especially with the markets roiling nowadays on large bank failures and market uncertainty, very rarely do we see stock prices reflect the smooth S-curve depicted above. In reality, the curves are choppy and unpredictable.

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Zeitgeist On International Banking Conspiracy

The movie, Zeitgeist, was a critique on ideas that have held us from the truth, namely religion, politics, and finance.

The third part of that movie is about the International Banking Cartels and conspiracies, and is an interesting view in light of the recent turmoil in the global financial markets:

[Googlevideo=http://video.google.com/videoplay?docid=-1543466413190271647]

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