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Trading Buffett goes to shopping again!

Discussion in 'Shares' started by wdongli, 26th Aug, 2011.

  1. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    It is amazing to see Buffett goes to shopping again at the time most of market players are crying.

    Warren Buffett was said its company would invest $5 billion in the financial conglomerate, the Bank of American.

    Berkshire agreed to purchase 50,000 shares of cumulative preferred stock with a liquidation value of $100,000 a share in a private offering. The preferred stock carries an annual dividend yield of 6% and is redeemable by the company at any time at a 5% premium.

    "I am impressed with the profit-generating abilities of this franchise, and that they are acting aggressively to put their challenges behind them," Buffett said in a statement.

    Why does he buy the preferred stock? What 6% of yield means to him? It is not a very impressive yield but quite safe and much higher than the cash account. Why dos he shopping now? He is a great asset allocator. I could not understand the asset allocation in details.

    He likes to shopping in worst time. Does he sense the market has been at its bottom and doesn't think we could be in GFC II very soon but he prepares for it carefully?

    Everyone wants to protect their overall portfolio from bad times. Here, high - quality fixed income assets are the investment class of choice. Preferred stock definitely is not the best choice for growth but be powerful to protect the downturn in a safe ship. It seems Buffett wants a safe ship for his cash reserve in bad time!

    Generally saying, as long as the fixed income investments are creditworthy and can pay their bills, high - grade bonds, cash investments, and even inflation - indexed securities with their predictable income payments and guaranteed principal should help us weather dangerous economic environments.

    At moment I could not act to use fixed income investment to protect my asset but some day later I may need it.
    Last edited by a moderator: 26th Aug, 2011
  2. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Are you type of investors as Warren Buffett? I mean your capital size, experiences, knowledge bases, insight in future and the corresponding capital allocation here. If not, you could not follow him to buy anythings and hold forever. If yes, you should find your bargains with your homework for a sure safety betting! You only could read this news for the wind sensing. It doesn't tell too much but the stock market just is worse enough. Does it get into the worst range and what your holding horizon if you would like to buy in?

    Please note

    1. Buffett isn’t buying the common stock that you or I would buy.
    2. He’s buying preferred stock. That’s a totally different thing.
    3. Preferred is a type of corporate debt. It pays a hefty dividend, and it ranks above the common in the event Bank of America folds up shop.
    4. Buffett’s preferred comes with a juicy 6% yield plus 5% redeemed premium

    He is fishing at the bottom, which could be worse and take the time longer than anyone's expectation. He plays for incomes with a sure safety, that is Bank of America would not be bankrupted in this current crisis. Once things become better, he could sell the debt and take the chances to ride on the growth.

    Don't forget after Buffett bought in GFC crash, the stock market crashed down for another two months to get the rock bottom. Don't forget his target was to get a sure profit or cash and then he could use the profit to buy more in the rock bottom! Don't forget he used the panic of the management team of his targets to get bargain for his debt investment and the market usually would take the time to find the bottom after that!

    Before GFC I accumulated enough cash reserve. When Buffett said the market was Pearl Harbor in October 2008, I started to monitor the market tightly. In November 2008, the selling pressure started to rebate and then I started to buy in diversification and time average until March 2009. This strategy worked very well.

    Let's just assume a one very likely probability: Bank of America collapses!

    1. Beffett can throw his warrants away.
    2. But if the economy, and Bank of America, were to recover, he can exercise the warrants and make a huge windfall.
    3. If Bank of America miraculously recovered to, say, $12 a share, Buffett could call up bank honcho Brian Moynihan and demand the right to buy 700 million shares at $7.14.
    4. He could then turn around and sell them in the open market for $12, and make a $3.4 billion profit.

    Will that happen? Maybe, maybe not. But Buffett is being offered a great bet. Could get a sure safe bet for a expected profit? What about my position? I feel not too bad since the dirty-cheap fishes are the first part which would be thrown away by the market in crash. In the end of October 2008, all of dirty-cheap fishes in my watch list were marked as dogs into the hell and their price kept no great change until April 2009! It was not too bad if we thought the fact XAO led this current crash in price in the current bearish market. Australia bargain hunters have been hit too much and then have been in dumb and have burnt the money already if GFC II would not be in play very soon!

    Do remember that bank of America is too big to fail, and Warren Buffett — especially after his latest comments in favor of higher taxes — is too big to cross.

    But to you, the things may not good enough! So prepare for what your discount for the time the stock market on the rock bottom. We should learn the core principle and rules from what Buffett did and take the sense of independence and organization for our own business!
    Last edited by a moderator: 27th Aug, 2011
  3. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Roughly right and absolutely wrong!

    Market is fearful and herd is in panic, which is the market theme now. Buffett prefers to be greedy when market is fearful and his buying on Bank of American was a typical example how he is greedy when the market is fearful.

    Here his greed is not blind buying but that is based on his market view, philosophy, gem detection and picking up, and strategy to pick up the piled gold which only open to him without worries of safety. No loss, fail-safe, and no harm even Bank of American price could crash down again and again if it could not close the door.

    Some would cry for unfairness and curse the rich become richer. But what is the market for? Why do you come into market? You fail to pick up the winners that is because you are not good as Buffett!

    Too many market players like system based on the computers. You could not claim the systems and computers are bad and useless but when all of herd could use the computers and systems they become the tools to set up grave for the herd as any tools for market players.

    In life, computers are right 95 percent of the time when things are normal, but may err the other 5 percent of the time when things are abnormal. Unfortunately this 5% abnormal times make 80% or more to lose their shirts. 80/20 principle would find the way to beat the market herd down without matter what systems and computers they use!

    What seems true that Buffett is the expert to get the profit by using the 5% abnormal times. Nearly all of the systems designed for normal operations and life. However market is a different place, which have to defeat the normal operation and system to keep most of market players have to work in their workshop and offices for making the real materials, products, and services.

    Do you want to get your butters and milks from the market? Yes? You have to be very abnormal who could be clever and cool to find the piled gold in the ruins. The abnormal time is the time when you need human beings with wisdom and common senses.

    Market is very bad to the normal people with normal education who seem smart and high IQ but it is also very fair if you could beat your herd sentiment, know how to identify the gold in ruins, and have the gut to pick it up with calculated profit and margin to buffer your calculation mistakes.

    We are human, right? We could not be absolutely right and it is always a few absolutely wrong burn too much on fire. So could you be roughly right and never allow your absolutely wrong kill too much your capital let alone pick up the gold in ruins?
  4. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Don't be over-confident, good or bad!

    You like or dislike but the world becomes so small that everything could beat XAO down and us down too. Anything if we are over-confident and wrong in the market would cost the money in the market.

    Too many have been so confident for GFC II, which is possible but what if it could not be true in a year? How could we be sure for the profit when most of market players cry for tipping-off of everything? Worst and best cases are never the normal cases, right? Could you not cry but use this abnormal to sharpen your minds for some sure profit in next worst time? People tends to joke others' failure to show their cleverness but most of times they would trade themselves in later. It is dangerous to joke or twist the words. You have to do something right to make the market as your workshops or offices.

    So what do you prepare for the better or worse economies in the market?

    Why did DOW go up last Friday? It is because Bernanke’s message was that the central bank has tools at its disposal to spur economic growth, and at their meeting next month policymakers would assess the toll that stock market weakness, debt-ceiling negotiations and the European debt crisis has taken on the U.S. economy.

    What message did you get from this market movement?

    Is the market’s recent rally sustainable? That depends on whether the upward move is simply profit-taking, or if it’s an early sign that investors are gaining enough confidence that recession can be avoided and corporate earnings will grow to shift money out of gold, Treasury bonds and other safe havens and take more risk with stocks.

    Do you know the risk of recession is above normal? The U.S. economy is weakening at an accelerated pace. How do you know that?

    1. The headlines and the ECRI’s Weekly Leading Index growth indicator, reported Friday, showed U.S. economic growth at negative 2.1% for the week ended Aug. 19.
    2. A week earlier, the WLI went negative for the first time since mid-December 2010.

    Please note: the ECRI has cautioned that moves in the growth indicator must be prolonged and persistent before the readings can be called a trend, which should be acceptable if you have the chart background.

    Why do you worry about the trend of DOW? US is the leader of the global economies. XAO has tried very hard to predict where DOW goes and how EU and China would go too. The stock market is a forward-looking mechanism, and part of the reason for DOW’ swoon in August and XAO self-punishment since May was due to investors repricing equities to better reflect corporate earnings growth expectations.

    That reassessment may not be finished in US since September has been the worst-performing month of the year for the Dow and the S&P 500 since 1950 but XAO has pulled it down to 3800s to rehearse GFC II in July/August. However the market should be in the worst range for sometimes.

    1. The retail market players, especially the shirt losing bargain hunters would be reluctant to spy a bit of sunlight through the clouds.
    2. The professionals, financial advisers, and mutual fund managers with a mandate to shift among stocks, bonds and cash need to see in the economic and political climate in order to put more money into stocks.
    3. All of them have some sophisticated or crap systems which work in normal times but could not be trusted in abnormal time.
    4. They don't dare to pick up anything since they could not have chances to pick up the piled up gold ahead of them.

    How about me? It is most important question for my market performance in the coming financial year!

    I could not see the piled gold too, which has frustrated me for very long time. I don't have the education in finance, market, and economy and it takes time to catch up! However I do know if I didn't allow the cost run and depletion of cash reserve, it is the time I should put 30% of them into the market, put another 30% in next crash if it happens, and put 20% while the market has clear sign to move up!

    You don't know enough and then you need the diversification and time average more urgently in case you are wrong to pick up the extremely dirty-cheap fishes. I could not play as exactly as anyone in the market but I could use the ideas or what they do as signal to fine tune myself!

    All in all I have to be patient and just go around my corner for chances. Yes! It is just about my corner not anyone else. You could see and I may fail to see and I have to act with my mental eyes to find the chances belong to me and only to me!
  5. wdongli

    wdongli Well-Known Member

    31st Mar, 2010
    Things need to be monitored!

    1. How U.S. deals with its debt crisis

    It is last straw to break down XAO, DOW, and all of the stock market in last a few months. Before market could be bullish it has to get some hopes and reliefs. If the newly created congressional “super committee” tasked with cutting the U.S. budget deficit could reach a bipartisan deal providing a long-term map for how the U.S. will resolve its budgetary problems. However it seems a problem before the presidential election.

    2. EU gets some mind to its own debt woes

    XAO has worried it too long and it could not do anything. However a resolution of Europe’s financial instability would be a green light for stock investors. One of the key driving factors behind this gigantic instability in the financial market to the equity market is the fact that you’re really looking at a major banking crisis in Europe.

    It needs some kind of greater leadership on the political side, in terms of allaying some of the worst fears throughout Europe with regard to the very fragile situation that exists with Europe’s heavily indebted banks. It may take time but at some points it has to get that. We just don't know when and how they would do in future.

    3. US Retail sales become better

    It would show the customers' confidence about economies. If you worry about the future you could not stop saving for the rainy days. If US could start to spend more, it could lead XAO out of the depression.

    US Retail sales climbed 0.5 percent in July, the most in four months. The August number will be released by the Department of Commerce on Sept. 14. Logically if we saw spending and sales still holding up even in the wake of a market decline, that could be an encouraging sign.

    What if the retail becomes more gloomy? Another run in bloody in DOW and global market would be insight depending on how bad it is!

    4. God stops run!

    Gold and Swiss Franc are value storage, at least people thought so now! It is the fact even too many experts said gold has no value! Yes gold is no value since it acts as a measure for value in the bad time!

    So a decline in the price of gold and the Swiss franc would be another upbeat sign for the stock market. As a measure of fear, gold has been soaring in price, driven up by investor concerns over the U.S. and Europe’s economies, as well as a conviction that gold is an alternative currency to the U.S. dollar, the euro and other paper money.

    I bought gold hopeful for insurance but I really don't like to see it shoots up and everything else just shoot down.

    If the gold prices start to move south, that would suggest greater comfort with the economic environment and a willingness to take higher risk, which would be positive for stocks.

    However it is wrong to expect gold to be back to $1,000. Gold is not in ultimate bubble and its price rising for a decade is the reflection of the global economy structure shifting.

    Richer nations of emerging economies need more gold as their reserves. Why? GFC and EU deficit crises have told us very clearly you could not sleep on a currency for your national interests!

    5. Main Street is better

    Main Street should not be a place to speculation but unfortunately the GFC crash was really triggered by the Main Street collapsed down and people just could not stop worrying about its health.

    The financial services sector is the U.S. market’s worst performer so far this year, which has the reasons. Buffett’s support for BofA and Wells Fargo & Co doesn’t change the fact that a large number of investors do not view the nation’s biggest lenders as undervalued bargains even you could be quite confident to say they would be wrong! Herd could not be right in abnormal times.

    But financial services stocks nowadays are an area for investors who go against the herd, and who show the ability, as Buffett has said, to “be fearful when others are greedy and be greedy when others are fearful,” are finding selective bargains in the financial sector.

    It is hard to call the bottom. But after the herd burnt too much money in the Main Street, it would open the door sooner or later for it to swing positively. So if bank sectors become stronger, which turns to be the trend, the herd sentiment would follow sooner or later.

    6. XAO is the most coward herd in this world now!

    If it could show some gut whatever the reason, the global economies and stock markets would be quite good!

    7. Why don't say about China and Japan and someones else?

    They are not the sources of the current bearish market. Japan is a dead dog. China is in its soft landing even a lot cried for its tipping off. It could happen but seems not now and in a year!

    The current crisis is the extension of GFC and IT bust. The causes of them are from the advanced World and then if the causes could not be removed, we would be in troubles times by times.