The Rich Get Richer?
Warren Buffet is trying to make a quick buck again. He’s timing his investments again. When will he learn? Never-mind. I know my place. Buffet is someone I learn from, not lecture. He believes in timing investments. He believes in buying cheap. He’s made billions doing just that. Buffet knows how to do that and has the resources to do it well.
It’s funny, headlines yesterday pointed to Buffet’s move as great for the markets. The first thing I thought was that it has to be great for Buffet, but that means it’s not so good for someone else. Apparently he wants to re-insure municipal bonds for several companies who are possibly in trouble. Due to financial policies and credit rating systems these companies need to have a certain amount of cash available according to the risk of their portfolio. I guess Buffet believes that they are in a bad enough position that he can take the best big chunk of bonds from them. They have to decide if giving up the fees he wants, and the bonds he wants, leaves them in a much stronger position. One company came out very soon after I saw the news and rejected it.
What can we learn from this? The biggest lesson is understand your position. I believe timing investments is smart if you can handle it. Buffet, Microsoft, and Blackstone Group are all trying to do it again. But they are in great positions. Billions in cash. Finance, accounting, legal, and management teams working with them. They will not only make investments, but take control. It’s a lot easier to make money when you have a lot of money already. Fees take a percentage off your investments. That fee percentage will be a lot smaller on $1M than it will on $1k, so a larger investment can make a profit after fees quicker than a small investment.
If you had a billion dollars and real time access to Buffet’s financial moves what would you do? Would you make the same moves as him, invest in Berkshire, stick with index investing, or be happy to preserve it and go more conservative?
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