July 2 (Bloomberg) — It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway Inc. has slumped almost 20 percent since December.
The decline exceeds the drop of the Standard & Poor's 500 Index and marks the worst first half for the Omaha, Nebraska- based investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.” See: Buffett's Berkshire Has Worst First Half Since 1990.
I have long been a fan of Warren Buffett and his investment discipline. But the fact is that Berkshire is a publicly traded company. This means that Buffett is not actually in charge of Berkshire's share price. Like all publicly traded securities Berkshire shares are driven by the ebb and flow of mass psychology in the market auction. When assets in the world become wildly over-priced as they did from 2005-2007, Berkshire's shares are swept up in the over-optimism and over-pricing too. In market cycles, what goes up, must come down, and now Berkshire is losing value along with the overall markets. So much for it being a “quality” “defensive” holding.
All that we can control is our exposure to the market cycle. Doing that well is the source of all lasting value. This is why the “trick” is having a discipline to buy and sell market assets, not buy and hold.
Oh, but then as the talking heads on Kudlow Company were pointing out last night, if you have 30 years or more for your equity investments to prove profitable, then you can just passively hold 'em. No need to fret about timing your exposure. Always buy, never sell. Don't worry be happy.
As Barry Ritholtz points out this morning on his blog in Pervasive Pollyannas of Prosperity: “Words such as these can only be spoken by someone who has never worked on a trading desk or managed assets professionally — or if they did, they lost most of their clients' money.”
No truer words were ever spoken. Amen.
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