For those who have followed "my pal Warren" Buffett for years, or even decades, these cautionary stories of him losing his edge are as silly as trying to predict where the DJIA will be on a given date. As for Peter suggesting that he was early buying into Goldman Sachs Group (NYSE: GS) or General Electric (NYSE: GE) three weeks ago, well my gosh, it has only been three weeks!
I understand that the prevailing wisdom seems to be running against the buy and hold approach. But three weeks is kind of short to be passing judgment, don't you think? The DJIA is down 42% while Berkshire is only down 31% from its high of $5059.
Perhaps investors have punished the stock because GS and GE are down. Maybe it is because Berkshire has been buying up railroads and that strategy is less important with oil prices falling 55% since the summer high of $147 a barrel. It could also be because people have lost their minds -- who knows?
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to this CNBC page, a Dow of 8,000 is now in play, and gold might be set to strap a rocket on its back and propel itself up to $1,500 per ounce over time. I'm not sure about the gold, but a Dow of 8,000 almost feels like a logical rest stop at this point (but that might be emotion talking). In the end, none of us can tell the future.
I can, however, share with you a wish. And it isn't just my wish. I'm sure there are others out there who have already said this. And, yes, this wish is coming from someone who owns The Walt Disney Corporation (NYSE: DIS), The Coca-Cola Company (NYSE: KO), and General Electric (NYSE: GE). I own them for the long term (except for a separate trading position in GE which completely failed and may turn into another long-term asset), so maybe this wish isn't so mysterious. I want to go back to that "happy" time of October of '87. I want to see the Dow drop over 20% in one day. Preferably, I'd like to see it drop 25%, on Cloverfield-monster-sized volume. How many points would that be? As of this writing, it would be roughly 2,670 points.
What, am I insane? About as insane as the idiots who decided to become risk sponges, I suppose. In all seriousness, we need a crash. We need a reset, a reboot. We need a lot of panic on the street, and a spiking VIX ($VIX.X), to at least begin a bottom formation. If you think we're going to form a bottom without pain, you're wrong. And if you think, at this point, that we can form a bottom without a crash, well then, I won't say you're completely wrong on that count, but I will say that a crash would be better.
With its stock down more than 40% in pre-market, I am getting the same sickening feeling I had during that week in March when Bear Stearns' stock made its swan dive into an empty swimming pool. As I said yesterday on CNBC's Power Lunch, investors seemed disappointed that Lehman Brothers Holdings Inc. (NYSE: LEH) had not actually closed any capital raising deals.
Now Lehman -- which lost 7% yesterday -- was down over 40% in pre-market. That's because four analysts "widened loss estimates and cut price targets for Lehman," according to Reuters. And Art Hogan of Jeffries & Co. said that Lehman's best hope -- its plan to auction 55% of Neuberger Berman, may not work. "We are not even sure that the auction process for 55 percent of their asset management group is going to work because the people that win the auction need to find the money to buy it," he told Reuters.
I would not be surprised if Hank Paulson is now wondering why he ever took the job of Treasury Secretary. If Lehman stock keeps dropping 40% a day, there won't be much left by the end of the week. I have to believe that there are all sorts of people on Wall Street wondering whether they simply can't take the risk of continuing to do business with Lehman. And if that happens, Paulson will need to decide whether to let it fail, force a merger or bail it out.
Newspapers and blogs have been on fire after Apple reported its earnings with speculation about the health of its chairman and CEO Steve Jobs. Is the pancreatic cancer he dealt with in 2003 back? Why is he so thin?
BloggingStocks' Peter Cohan wrote that "The Times quotes Charles R. Wolf, an analyst at Needham & Company, who suggested that without Jobs, Apple stock could easily lose a quarter of its value in an instant. I agree. And that's why I think it's time for Apple to formally disclose Jobs' condition to shareholders."
That makes perfect sense: Jobs' health is clearly material to Apple shareholders, and it would be good for the company to disclose, in the form of an 8-K, what exactly is going on. It's time to put the rumors to rest.
But here's the problem: How far do you take that? Should companies have to tell their shareholders everything about their top executives' personal lives that could impact their job performance?
This could get messy in a heartbeat. Imagine a proxy statement that, in addition to the usual report of the audit committee, also included an opinion from Dr. Phil on the state of the CEO's marriage, and whether his son's drug problems were depressing him and taking his time and focus away from the company's operations.
If you agree that companies should update shareholders on an important CEO's health, then it isn't such a stretch to suggest that other personal factors impacting job performance should be disclosed too. But who would want to be the CEO of a company where one's personal life is exposed in Perez Hilton-detail in SEC filings?
The S&P 500 is down 12% this year. But some stocks are doing spectacularly well.
My newsletter, which has been picking three stocks a month for the last five and a half years, has found several of them. This year, it's up 29% so far. That increase is the rise in the average stock mentioned in the newsletter since its initial mention through the end of June. And it uses a 2% stop loss rule which automatically sells any stock that has declined by 2% and charges that decline against the returns.
With oil prices on the rise, these three are likely to benefit. But at some point, their valuations will exceed their earnings growth. So keep a close eye on them.
So the big news on Thursday was CBS' (NYSE: CBS) hefty $1.8 billion purchase of CNET (NASDAQ: CNET). Douglas McIntyre already explained why this was such a "weird deal" in an excellent article that you can read here. I'd like to expand on that thinking a bit by asking if it should have been Viacom (NYSE: VIA), as opposed to CBS, in the buying seat.
Remember "old Viacom"? Old Viacom was composed of CBS and "new Viacom", the latter being the Viacom of today. I know, confusing, but that's how things are when a big media conglomerate splits in two. Anyway, there was a general mandate given to both companies, one that basically stated the logic of CBS being an entity that focuses on cash flows and dividend increases while new Viacom would focus on acquisitions to promote capital appreciation of the company's stock. Sure enough, the yield on CBS tells the tale perfectly.
So, I have to ask, what gives? I mean, a check of CBS' latest 10K shows that the broadcaster generated $2.2 billion in operational cash flow in 2007. I think paying $1.8 billion for anything, let alone a questionable asset vis a vis CBS' core media competencies, might be too much given CBS' mission to return a lot of value to shareholders over the long-term in the form of dividends.
Lost in the flurry of activity over the weekend surrounding The Bear Stearns Companies (NYSE: BSC) is this morning's news that Carlyle Capital, the subsidiary of the Washington-based private equity king Carlyle Group, is 'winding up.' MarketWatch reports that Carlyle Capital, 15% of which is owned by Carlyle Group partners, has more liabilities than assets.
It is interesting that Carlyle can't utter the word 'bankrupt' -- instead preferring the innocuous-sounding term: 'winding up.' But Carlyle shareholders will be left with nothing. And, as I posted, since Carlyle borrowed $32 for every dollar of equity, or $16.6 billion, to buy mortgage-backed securities (MBS), the banks who take possession of those MBSs will probably be eager to dump them as fast as possible -- unless they think they will get a better deal by waiting.
But why wait? After all, the Fed lent $30 billion to JPMorgan Chase & Co. (NYSE: JPM) on a non-recourse basis to take over Bear Stearns's MBSs. This means that if Bear's MBSs go bad, the Fed will take the hit. Is there any active market at all right now for MBSs? If so, should the Fed just dump Bear's MBSs and take the hit now? Won't Carlyle Capital's banks do the same? And who will step in to buy all these MBSs? At what price?
The Wall Street Journal's [subscription required] David Wessel gets it. His analysis of the problems with the banking system and how to fix them are spot on. He thinks there are three steps to fix the system and I agree.
His three steps:
Link banker's pay to the quality of the loans they originate
Improve the quality of bank monitoring to increase transparency
Stop letting the ratings agencies' clients pay for their ratings
I posted about these ideas last year. In this October 2007 post, for example, I commented on the importance of putting banker's compensation at risk when they originate loans. I thought that if bankers' bonuses were at stake, they would be more careful about the loans they originated. I also discussed the importance of transparency in reporting. And in this August 2007 post, I talked about how the ratings agencies were compromised by the fact that they were being paid by the people they were supposed to rate.
I like Wessel's ideas and I hope his powerful editorial pulpit helps to get them implemented.
It was only seven weeks ago that I posted Chasing Value: Considering Berkshire Hathaway... again. At the time, Berkshire Hathaway (NYSE: BRK.B) was trading around $3,850 for the "B" shares. 
Is the market getting you down? You want it to go up, right? Well, you better settle in and brace yourself for even harder times as an individual investor. That is, if some pundits are correct about the direction of share prices. According to 
With its stock down more than 40% in pre-market, I am getting the same sickening feeling I had during that week in March when Bear Stearns' stock made its swan dive into an empty swimming pool. As I 
Here are some highlights from this past week's 
Here are some highlights from this past week's 
So the big news on Thursday was 
Lost in the flurry of activity over the weekend surrounding 
Stock picks and pans for troubled times: RIMM, ED, ISRG, GLW, LEA, SLB, GOOG ...
Is Berkshire Hathaway better than S&P Index?
Closing Bell: Torch Passing on a Friday Rally
