The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [502]
“It’s a weird time. We’ve gone into a different world, and nobody knows what will happen to the world, but Charlie and I looked at the downside, and nobody else did, very much.” Deleveraging could be a painful process in which banks, hedge funds, financial-services companies, municipalities, the construction and travel industries, consumers, and indeed the whole economy withdrew—fast and painfully or slow and painfully—from the intoxicant of cheap debt. Asset returns could well stay subpar for a long time—what Charlie Munger called a “4% return world.” Beware of scams and charlatans, said Munger; they might proliferate because the easiest way to turn four percent into sixteen percent is thievery.
In the midst of all the chaos of the spring of 2008, there sat Buffett, whose thinking about value and risk had not changed in the nearly sixty years of his career. There are always people who say that the rules have changed. But it only looks that way, he said, if the time horizon is too short.
There was Buffett, stooping for cigar butts as if he were a child again. He took no joy from others’ pain, but in the business of life, everyone chooses a side to play. Times like these brought out his sharpest skills, the joy of doing what he loved most, true to himself. “We’re selling some credit default swaps [insurance against firms going bankrupt] in situations where it is underpriced. I’m sitting here with my newest daily paper that I read, the Bond Buyer, on my lap. Who the hell would have thought that I’d be reading the Bond Buyer every day? The Bond Buyer costs $2,400 a year. I felt like asking for a daily subscription rate. We get these bid lists on failed auctions of tax-exempt money-market funds and other auction rate bonds and have been just picking them off. The same fund will trade at the same time on the same day from the same dealer at interest rates of 5.4 percent and 8.2 percent. Which is crazy, they’re the exact same thing, and the underlying loans are perfectly good. There is no reason why it should trade at 820, but we bid 820 and we may get one, while concurrently someone else buys exactly the same issue at 540. If you’d told me ten weeks ago I’d be doing this, I’d have said that’s about as likely as me becoming a male stripper. We’ve put $4 billion into this stuff. It’s the most dramatic thing I’ve seen in my life. If this is an efficient market, dictionaries will have to redefine ‘efficient.’”
Who would think that tax-exempt money-market funds could become cigar butts?
“But the most immediate and doable opportunity is weird things in the credit market. And the biggest opportunity is in mortgages. But I don’t understand them well enough, although I’m learning them so that I can understand them. And if I think I’ve got enough margin of safety, I’ll do it.” But the average person should not do it.
“No. Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market.
“If a cross-section of American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors.”
If there is any lesson the life of Warren Buffett has shown, it is the truth of that.
Trees don’t grow to the sky, but Buffett felt he could help new saplings take root. He never lost his focus on business, but as he contemplated the ideal way to spend the rest of his life, once again he was roused by the urge