Is Buffett getting margin calls?

[Cutten]

Quote from Daal:

What you say is 100% correct. I understand its unlikely buffett will lose in his puts but if you think about it back in 2007 it made all the sense in the world to buy 'black swan' puts in the US indices since his correlation to the US economy is HUGE and volatility was absurdly cheap. He would have very little to lose and it would have helped him to cut off some of his tail risk in his stock and private equity portfolio, yet he did just the opposite(altough in decent terms by getting paid upfront)

The other dumb thing about this move is that Buffett is a bottom-fishing value investor. Being short a put means you cannot take advantage of extremely distressed prices, because you are already effectively long from much higher. It takes away a value-investors most potent weapon - the ability to deploy substantial cash into securities at major discounts whenever one of the periodic panics or recessions hits the market.

Why would someone who specializes in being able to buy when others are too scared, want to give up that unique advantage for a measly premium at historically very low volatility levels? It makes no sense.

IMO it's further evidence that Buffett has simply got too old. He is 79 and like everyone that age, his brain is deteriorating, so his judgement is not as good and sharp as it used to be.

 

[Cutten]

Quote from oraclewizard77:

So if everything falls to $ 0, they owe $ 37 billion. At the end of 2008, they owe $ 5 billion as per mark to mark.

However, they only had to put up 1% non callable.

If the market recovers before end of put, then they made a great bet.

No they didn't. A far better bet would have been to stay in cash or Treasuries until prices went lower, and then invested at those bargain prices.

Let's say the S&p falls to 400, then goes back to 1500 by 2019. People like you will say Buffett made a great bet. Wrong. By selling those puts, he missed out on the chance to buy more stocks at 400, 500, 600, 800, 1000 etc on the way down. A put does not just lose you money if it expires in the money. It also loses your opportunities if the price goes down then recovers - by leaving you unable to buy more at the low prices (due to already having commitment to buy at much higher prices where the put was struck). That is the true cost of a put to a potential trader or investor who might otherwise bargain-hunt near the lows.

 

[college_trad3r]

Quote from Cutten:

No they didn't. A far better bet would have been to stay in cash or Treasuries until prices went lower, and then invested at those bargain prices.

Let's say the S&p falls to 400, then goes back to 1500 by 2019. People like you will say Buffett made a great bet. Wrong. By selling those puts, he missed out on the chance to buy more stocks at 400, 500, 600, 800, 1000 etc on the way down. A put does not just lose you money if it expires in the money. It also loses your opportunities if the price goes down then recovers - by leaving you unable to buy more at the low prices (due to already having commitment to buy at much higher prices where the put was struck). That is the true cost of a put to a potential trader or investor who might otherwise bargain-hunt near the lows.

you mean the more the market goes down, the more money has to be reserved and thus less is available to bargain-hunt for the true profits

I am also reading buffett not needing to reserve the money required even with lower stock market
will then berkshire be the next AIG, not being able to cover its obligations on the puts. this sounds fishy imo

 

[PitchBlack]

Although i do not make as much money as Buffett does, and i probably reach half the intelligence of the average ETer, i will try to make a posting that makes sense.

I tried to analyze the result but not on a yearly basis. Buffett invests for the long term, so results should be analyze accordingly. I took 5 and 10 year blocks to calculate the average compounded rate for a block to see how things went block by block instead of year by year.

I took the figures from Berkshire as they where published by themselves and putted them in block A. Then i made 10 year periods in block B and calculated the compounded rate for each 10 year period. In block C i did the same but for 5 year periods.

From 1999 on things went wrong:
in the 10 year block the compounded rate went from 28.96% to 6.44%, so down 77.76%.
in the 5 year block the compounded rate went from 33.70% to 5.97%, and 6.91% so down roughly 80%.

In 5 and 10 year blocks you filter out the noise and get a much better view on the results because Buffett is a LT investor.

The fact that for 10 years now things go wrong, proofs that there are at least doubts that Berkshire will stay at a compounded rate of 20.30%. He will have to improve his performance to over 400% of the average performance of the last 10 years.

 

[trader_arb]

Quote from Cutten:


IMO it's further evidence that Buffett has simply got too old. He is 79 and like everyone that age, his brain is deteriorating, so his judgement is not as good and sharp as it used to be.

This may actually explain why he favors Obama and his team. Thanks for clearing this up.

 

[spyderman]

Quote from trader_arb:

This may actually explain why he favors Obama and his team. Thanks for clearing this up.

He has mentiontioned several times the counterproductive, amateurish job Team Obama is doing. He seems to have the same buyers remorse as with the COP purchase, etc.

For whatever reason Buffett no longer seems to be doing his meticulous homework.

 

[trader_arb]

Quote from spyderman:

He has mentiontioned several times the counterproductive, amateurish job Team Obama is doing. He seems to have the same buyers remorse as with the COP purchase, etc.

For whatever reason Buffett no longer seems to be doing his meticulous homework.

Good point, however like you also said, if he did his homework he probably wouldn't have supported them in the first place.

 

[smilingsynic]

Quote from Cutten:

No they didn't. A far better bet would have been to stay in cash or Treasuries until prices went lower, and then invested at those bargain prices.

Indeed, and it would have been far smarter for Captain Smith to slow down and keep Titanic away from the iceberg.

Woulda, shoulda, coulda mean nada. Of course if Buffett knew prices would be going lower, he would have stayed in cash and waited for "bargain" prices.

On the S&P bet he made, he still has plenty of time. In the mean time, he has the cash from the sold bear gamma to invest, and he might end up getting a decent return on it.

 

[Trader666]

And an even better bet would have been to buy puts and invest the proceeds at the exact bottom in the stocks that will go up the most. Come on... he's Warren Buffett, not the Amazing Kreskin or Jack Hershey.

So in addition to NOT having a crystal ball, let's not forget that their first contract comes due in 2019 and their last in 2028 and in the meantime they've received premiums of $4.9 billion to invest.

Quote from Cutten:

No they didn't. A far better bet would have been to stay in cash or Treasuries until prices went lower, and then invested at those bargain prices.