Monday, February 9, 2009

Following Buffett

In a post at Forbes.Com titled, "Has Buffett Lost His Touch", an important distinction is made between what Buffett is buying and what you can buy:
In our Investor Team discussion, Ronald Sloan, a fund manager with Invesco AIM, and Marc Lowlicht of Further Lane Asset Management both point out that Buffett has commanded preferred terms for many of his recent investments, so nvestors looking to copy him have to watch out. When making big investments recently, Buffett has purchased preferred shares that pay high dividends and have limited risk of depreciation.
They also point out the obvious, that the famed investor is not infallible (noting in particular his investment in US Airways). What I found interesting, however, was this excerpt--which compares what Buffett wrote in his 1989 shareholder letter with the more recent preferred purchases:
The preferred stocks structures we have negotiated with provide a mediocre return for us if industry economics hinder the performance of our investees, but will produce reasonably attractive results for us if they can earn a return comparable to that of American industry in general," Buffett and Munger wrote.

They then explained that: "Under almost any conditions, we expect these preferreds to return us our money plus dividends. If that is all we get though, the result will be disappointing , because we will have given up flexibility and consequently will have missed some significant opportunities that are bound to present themselves during the decade."

It ends with a call to other investors to follow Berkshire's lead: "[W]e believe Berkshire's investment will also help and that other shareholders of each investee will profit over the years ahead from our preferred stock purchase. The help will come from the fact that each company now has a major, stable and interested stockholder whose chairman and vice chairman have, through Berkshire's own investments, indirectly committed a very large amount of their own money to these undertakings."

Buffett and Munger could easily rewrite that 1989 letter and do little else but change company references to Harley, Goldman and GE.
Read the rest of the article at the link provided above. I didn't excerpt all the good stuff by any means! Even Whitman gets a mention--along with another fund manager they recommend for those who want money invested in a Buffett-like fashion.

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