Buffet's Big Bet

You've probably heard that Warren Buffett has purchased a couple of shares of Goldman Sachs this week. I saw a quote of his that says "Be fearful when others are greedy, and greedy only when others are fearful".

Part of me wants to believe that Mr. Buffett is being patriotic and trying to save our country from an economic mess. Part of me thinks he's doing this because he knows a bargain when he sees one. The truth is probably somewhere in the middle.

I had two thoughts about this:
1) Mr. Buffett has put up $5BILLION (you have to use bold letters for that word) and may put up another $5BILLION. The total bail-out is estimated at $700BILLION. If we can get Mr. Buffet to call 69 of his friends and they all step up to the plate, we'll have this thing licked quickly.

2) Like Mr. Buffett, I recently invested a small amount in a couple of companies. I followed his mentality, I chose companies that I believe are undervalued, companies that I understand the product and companies that I think will be around a while. I don't intend to strike it rich overnight, but won't complain if I do. Like Mr. Buffett, I invested money that I can afford to lose. If he or I either one lose, I don't think we'll go hungry.

Just like Mr. Buffett, if I called all my friends and they invested like me, we'd have this problem licked. I'd have to call a few more friends than Mr. Buffett though.

In fact, if I started calling right now and spoke for only 3 minutes per call, never slept, never stopped calling; If each person that I called then invested the same amount as I did, how long would it take for me to raise the $5BILLION that Mr. Buffett has already raised?

Well, I'd be finished sometime in the year 2027. And that's not including the additional part that Mr. Buffett might invest or his 69 friends.

I'm not sure I have that many friends. If I called them asking them to invest, I don't think I'd keep them for long. But this shows the magnitude of Buffett's Big Bet.

Warren Buffett profits from others' bad credit

Warren Buffett is known as the Oracle of Omaha. Investors watch his every move, hoping to see where he is investing, hoping to make just a portion of what he makes. According to Wikipedia, he's worth about $62 BILLION the richest man in the world.

About six months ago, Buffett started a bond insurer. This is the kind of company that insures bonds (DUH!). Put another way, say your city wants to build a highway. It borrows money (via bonds) from a lot of sources. But in order to guarantee that they won't go bankrupt, they buy insurance, bond insurance (shaken, not stirred). Sometimes, bond insurers also insure subprime mortgage debt. Most likely not for individuals, but think of providing insurance to Countrywide mortgage.

So, fast-forward through the commercial, to present date. Some of these bond insurers are getting a lower credit rating because of the subprime mortgage problems. Buffett on the other hand has the highest credit rating, so he gets the best interest rates and can run his business more efficiently.

So technically, he's profitting from other companies bad credit. (see this story for more detail).

But rather than hate him, we can learn from him. Warrren Buffett is one of the most frugal ever investors. He looks for investments with value (he buys things on sale). He is against the government being involved in gambling (lotteries, etc - see here). And he only buys things when he has money (which is most of the time, since he's rich)