Why is it that people trust Warren Buffett so much? Why is it that millions of Americans listen intently to every word the Oracle of Omaha says? I don’t know. Here’s what I think of Warren Buffett. And I think very lowly of him. But first, let’s examine why people trust him.
Why do people trust him?
Warren has consistently produced above average returns. That’s the most important reason why people trust him. That’s an irreversible fact that is written in pure black and white. But many other, lesser known investors have consistently beat his investment returns. What makes Warren so well known and popular? If you want to hear the truth, read on.
1 – He’s a PR machine. In his biographies, Warren has repeatedly stated that he cares deeply about his public image. That is why Buffett is so well known and admired – because he keeps churning up sh** from his PR machine. While many other spectacular investors keep a low profile, Warren loves the public attention he gets.
2 – He tells the public what they want to hear, but not what they need to hear. The public loves the “buy and hold” investment strategy. “Buy today, hold until retirement, and watch your portfolio grow!” This is exactly what Mr. Buffett preaches, but no longer does, because he knows that buy and hold no longer works (I’ll explain more later). But since the public loves the notion of passive investing, he keeps ranting on and on about it anyways like he’s some kind of Buy & Hold God (which gives him great PR and respect from the millions of adoring Americans).
Does the man talk the talk and walk the walk?
Warren Buffett is a well known figure among contrarian and buy and hold investors. He constantly preaches the “buy great companies, and hold them forever” and the “be greedy when others are fearful, and fearful when others are greedy” lines.
It’s true that Buffett
buys used to great companies. He no longer does that. He no longer “buys great companies and holds them forever”. You may be wondering “why doesn’t he do that?”
1 – Buy and hold no longer works. Eventually, all great companies will go bankrupt. That’s a fact. If you hold onto a stock “forever” like Warren preaches, you’ve got a high possibility that the stock price is going to zero. Also, these are dark days for America. We have entered into a secular bear market. Buy and hold doesn’t work in a secular bear market, because you can be holding for a decade and not get any investment returns (while real inflation erodes away at your portfolio’s value). Market volatility will be greater in the future than in the past, because the world is revolving at a faster pace, and investors are getting ever so short minded. Buy and hold works best in periods of steady uptrends, but due to foreseeable market volatility (at least in the medium term), buy and hold isn’t the strategy you should be using.
2 – Warren Buffett prefers to buy entire companies. Currently, there are no great companies up for sale. All the great companies have either been snapped up by other corporations, or are refusing to sell themselves. Sorry Mr. Buffett, no great companies for sale. Please wait in line.
So if Warren Buffett no longer walks his talk, what does he do?
He’s a typical Wall Street money man.
1 – He reaches out a hand to companies in need, grabs the company by the throat, and milks it for all it’s worth. You may have heard of the recent Warren Buffett – Bank of America deal. To hell with the “he’s buying BAC stock because he thinks its a great company. Those who are now buying BAC stock are getting a different deal than Buffett is getting. Buffett is getting a 6% dividend on preferred shares, with options to buy more in the future at a set price. Ordinary investors aren’t getting that kind of a sweetened deal. BAC is obviously a horrible company. Any sane investor would know that. But as long as BAC doesn’t go bankrupt, Warren is getting a sure-fire money making opportunity with this $5 billion investment in BAC, because he’s getting a huge dividend, and options. And he knows that the government will bail out BAC if need be. That’s the real Warren Buffett for you. Reaches out to BAC (who’s in need of help), grabs it by the throat, and squeezes all the money out of BAC by giving himself the best deal possible. Warren Buffett did a similar thing with his 2008 $5 billion investment in Goldman Sachs.
2 – He’s an inside trader. The only difference between Buffett and other insider traders is that Warren hasn’t been caught yet. Don’t believe me? Remember the deal between Goldman Saches and Mr. Buffett in 2008, when Warren invested $5 billion in GS? How did Warren know that he wasn’t investing in a future Lehman? How did he know that he wasn’t investing in the next Bear Stearns? Goldman’s finances were as much of a disaster as Lehman’s. But Warren went ahead anyways and invested in Goldman Sachs for one simple, obvious reason that serious thinkers realized – Warren knew before hand that the federal government would bailout Goldman.
The serious thinkers like Barry Ritholtz and Michael Steindhart turn a blind eye to what Warren preaches. Warren doesn’t put his money where his mouth is. So next time the “Oracle” of Omaha opens his mouth, think twice before you tell your friend “I heard a great speech by Warren Buffet last night. He was saying blah blah blah blah.”
First of all, he’s a fraud, along with his “buy great companies” line. He’s not doing that. He bought Goldman Sachs. He only bought it because he knew the governement would bail out GS.
Also, he’s a typical Wall Street financier. Help those in need, steps on the throats of those in need, and then squeezes the money out of those in need.
If I offended anyone here who loves Buffett, I’m sincerely sorry. Now I ask you. Do you trust the man? Also, thank you to Invest It Wisely for a pure 101% awesome comment, and to Kellen for pointing out a wonderful fact that I should have included in this post.