Buffett Naked

Warren Buffett, that most eminent investor, has been fond of proclaiming smugly that “it’s only when the tide goes out that you see who’s been swimming naked.”  At the time, he was referring to other people.  It’s true that Warren has been very battered over the last year* but remains only slightly less eminent.  (He was the first chapter in my first book on great investors, “The Money Masters,” published in 1980.)  My reason for bringing all this up is not because Warren had an awful year, but rather in order to consider the swimming naked conception, the anatomical aspects.

Is it indeed true that nudity is revealed by an ebb tide?  I don’t follow that idea.  If you are somehow anchored to the sands indéshabille near the high water mark, perhaps, but if you are just paddling around, even if starkers, you move offshore a few yards, and stay exactly as deeply immersed as before.  Your head and some shoulder are exposed, but not your nether appurtenances.  So, I just can’t see it.  I’ll ask Warren to demonstrate this point.

There has been much discussion of his 20% holding of Moody’s investment ratings service during the gross over-ratings of the wormy sub-prime mortgages fobbed off to credulous investors during that disgraceful extravaganza.  Half of them went to foreigners, which as an American embarrasses me.

It has been argued that since Buffett wasn’t a director he wasn’t legally responsible, and that he couldn’t have sold the Moody’s stock without driving its price down.  Both arguments fail.  He has sold many stocks in the past because he thought the price was too high:  That’s the nature of markets.  His past sales didn’t kill off the companies themselves.  And as to the largest shareholder of a company remaining silent during a gross abuse, he’s never been troubled about criticizing all and sundry quite freely in the past.  He may not have a legal liability, but in the court of public opinion, he seems pretty guilty.

Added April 9:

Warren Buffett may also have an objective problem. He has liked to draw attention to Berkshire’s unique status as an AAA-rated insurance company. (AIG was there once, but that’s well gone.) Berkshire’s number was thus the one to call if you wanted to lay off a huge risk–”super-cat” as it’s called in the trade. However, God prefers to be the sole dispenser of sure things, I seem to observe. Moody’s, after its other troubles preferring to avoid any imputation of partiality, has today downgraded Berkshire by two notches.■


* If I read page 15 of his 2008 annual report correctly, his investment holdings are now selling down at their original costs.