Feb 28 2009

The Wizard Speaketh

Published by at 10:42 pm under Global Economy,Investing,Managing Money

“The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors.  These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible.  They then made this experience a yardstick for evaluating future losses.  They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford…Investors should be skeptical of history-based models.  Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive.  Too often, though, investors forget to examine the assumptions behind the symbols.  Our advice: beware of geeks bearing formulas.” – Warren Buffett, February 2009

 

I for one have the utmost respect and admiration for Mr. Buffett and although even “The Wizard of Omaha” isn’t always right, he certainly hits the nail on the head more often than not.  So while I have about given up on offering insight at the moment (at least until we hit bottom), I won’t hesitate to direct you to the annual Berkshire Hathaway shareholders letter that just hit the web.  I strongly suggest you read Mr. Buffett’s commentary and carefully consider what he has to say.  You never know, your future prosperity might just depend upon it.  To the Shareholders of Berkshire Hathaway, Inc.:

No responses yet

Comments are closed at this time.

Trackback URI |