If anyone would have talked to Warren Buffet in 2007, he might have come off as a person out of touch and someone who was set in his ways. His lack of interest in the newly created financial products like Credit Default Swaps (CDS) and other results of financial alchemy was seen as moves of a person who wanted to be out of the loop altogether. What others saw as naivety turned out to be blissful ignorance as the world then saw how these products were short termed and were more complex than anyone could ever understand.
Buffet is on record saying that he never used these products as he could never figure out what they actually even stood for. It does prove to a certain extent that there are certain investment fads that come and go but if you have a solid investment policy, you can still beat the market. The Mergers and acquisitions boom of the 80s, the internet bubble of 90s and now the global financial meltdown of 2008 show that there will be investment fashions that will keep popping up from time to time but as long as someone keeps an eye on his investment philosophy, he will be successful.
The heavyweight of value investing has a simple view on when to buy certain things. He buys his stocks like he buys his socks. Good quality products at a price that is marked down from what it should be. Simple enough. The basics of any investment. Buy low and sell high. But it is the timing and a keen eye to keep tabs on these prices that makes Buffet one of the most successful investor in the world. And that too while he takes minimal risk and earns dividends and benefits that surpass anyone else in the world. Hedge funds and hugely risky investment vehicles of today try to reach the same objective.
They want to earn a lot of money really fast but no one has been able to match the performance of someone like Berkshire Hathaway over a long run. They take on too much risk on too little facts and that is why many of them end up making colossal losses or going out of business altogether. The difference is simple to see but needs patience and time. At one hand, Buffer invests in ideas and companies that have some substance backing them and they make a product that is in existence.
On the other hand, hedge funds or others invest in pie in the sky ideas that promise a lot but deliver quite little in the end. Does this mean Buffet is a genius and only one of them come along in a lifetime? The answer is no. His ideas, his strategies and his knowledge are known by everyone. Anyone in the world can follow his ideas and earn the benefits that he earns. The problem is that no one believes in the world that Mr Warren does in. When people are talking about another downturn and an ensuing depression, Berkshire Hathaway is acquiring new companies and Buffet is still optimistic about the future and what it holds for America.
The fact of the matter is that at one hand, Buffet is seen as an oracle of the equity market and is praised to be one of the most influential investors of the last 5 decades but his comments are always considered as a grain of salt. Fashion would keep on coming and going but as it stands the recipe at Berkshire Hathaway stays the same.