Wow… BUffett is buying a U.S. manufacturing company for $4+ billion?!? Hmmm… why isn’t he buying bank stocks if they’re so cheap? From the WSJ writeup there are a couple of aspects to this deal that make it a classic value investor scenario… (1) the people selling NEED to sell… the sellers are not selling because of the valuation but because of legal reasons, family fighting etc., (2) the market hates conglomerates and tends to price them cheaply. http://online.wsj.com/article/SB119861809854349511.html?mod=hps_us_whats_news
Warren buys stocks that are nowhere in the headlines - rail road last year and now this one. Bank stocks are still in the headlines (and catching the attention of foreign investors). Not enough margin of safety.
I agree with you about the margin of safety but that headline thing is just a coincidence. He buys from unwilling owners. People selling bank stocks right now are selling because of expensive valuations (Yes, I know that sounds crazy when you only look at how financials’ prices have already fallen and their trailing P/Es, etc)
2008 is going to be a lot worse than 2007 for banks
Buffet places high value on understanding the business model and products of the businesses he buys. Although he may understand banking in general, the risks come from the collateralized structured products which nobody really understands, and he is just sensible enough to recognize it and stay away.
bchadwick Wrote: ------------------------------------------------------- > Buffet places high value on understanding the > business model and products of the businesses he > buys. Although he may understand banking in > general, the risks come from the collateralized > structured products which nobody really > understands, and he is just sensible enough to > recognize it and stay away. Agreed. I’m sure he would’ve bought bank stocks only if he knew: (1) when the writeoffs will end and (2) how much will ultimately written off. No one knows…
Personally, I think the rail stocks, which he’s been buying up for a while now, look awfully attractive with Shipping rates so high. If you consider that international shipping rates have soared more than 400% in recent years and severe shortages in the rigs and delays in shipping costing companies and hurting margins, maybe they decide to buid some plants or get products in mexico or even the US rather than China. Then the rails get the demand from that transcontinental shipping. Maybe a long shot but I think theres some value. Full Disclosure: I own Trinity (TRN).