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Is Warren Buffett The World's Greatest Investor Or Insider?

Warren Buffett is considered by most people to be the best investor in the world. After all, he is one of the richest men on the planet. Mr. Buffett is a disciple of the legendary Benjamin Graham. Ben Graham's philosophy was to always have a margin of safety when investing and Warren Buffet has certainly mastered that. Mr. Buffett was the son of a U.S. Congressman, so he so he was able to see how things worked in Washington D.C. and the political world. 

Over the past six years Mr. Buffett has been adamantly promoting that people should own stocks. In 2008, he invested money in Goldman Sachs when many in the public thought that the firm was destined to collapse. After all, financial giant Lehman Brothers was allowed to collapse. Other giant financial firms such as Bear Stearns, Merrill Lynch, Washington Mutual, Countrywide Financial, Wachovia, and many others were all taken over for pennies on the dollar. How did Warren Buffett know to invest in Goldman Sachs Group above the other financial firms? At the time when he got involved with Goldman Sachs the common stock was trading around $125.00 a share. Of course, Mr. Buffett bought preferred shares. During the time that Mr. Buffett was invested in the company the common stock of Goldman Sachs declined to $44.47 a share before finally bottoming out in November 2008. Many investors in the public followed Mr. Buffett into Goldman Sachs stock at $125.00 a share but were shaken out when the company looked like it was on the verge of collapse. After all, who can hold a stock when it drops by more than 62 percent from their entry? Only Warren Buffett can have that kind of staying power. 

In August 2011, Mr. Buffett invested $5 billion in Bank of America (BAC). At that time, Bank of America common stock was trading around $7.00 a share. Of course, Mr. Buffett did not buy the common shares he bought $5 billion of preferred stock that paid a 6 percent annual dividend, he also received warrants for 700 million shares that he can exercise over the next 10 years. Bank of America has the option to buy back the preferred shares at any time for a 5 percent premium. It should be noted that over the next couple of months from the initial investment in Bank of America, the common stock declined to $4.92 a share before bottoming out on December 19. 2011. Once again, the average investor on main street that might have followed Mr. Buffett and bought the common stock shares of BAC stock would have a very difficult time holding a losing stock that declines by more than 30.0 percent against them; but once again, Warren Buffett has that staying power. How does the Oracle of Omaha know these stocks are going to make that comeback?

Over the past few years the United States has been undergoing an energy boom. North Dakota has been producing oil that needs to be transported around United States. Once again, Mr. Buffett became a major investor in the railroad stocks. In 2009, Warren Buffett bought Burlington Northern Santa Fe Corp for $34 billion. The purchase would be the biggest acquisition ever for Berkshire Hathaway Inc. which is the investment firm that Warren Buffett owns. Since the time of the acquisition, the railroad stocks have been some of the biggest winners in the stock market. This acquisition in the railroad stocks also came at a time when the Keystone XL pipeline in Canada was ready to break ground and start operations. Many people would think that a major pipeline out of Canada throughout the United States into Mexico would be a much safer way to transport energy products than by rail road. Since the Warren Buffett investment in the rail road stocks President Obama has sternly opposed the Keystone XL pipeline citing greenhouse gas emissions as the reason for not approving the project. At a time when the United States could use the jobs, President Obama refuses to budge on the Keystone XL pipeline. Does Warren Buffett have any influence over President Obama? Recently, there have been several major rail road crashes carrying energy products. One major railroad accident happened in Canada last year and another accident just occurred in North Dakota last week. 

Recently, it has been reported that Warren Buffett is starting to invest in oil refinery companies such as Phillips 66 (PSX). Many of the leading oil refinery companies develop polymers that allow energy products to flow freely in a pipeline. What does the Oracle of Omaha know that we don't know about a potential pipeline being built from Canada now? Either way, we can only guess that he knows a lot more than the rest of us. Sometimes when you have as much money and political influence as Warren Buffett you can make the rules as you go along. It is well known that Mr. Buffett is a major financial contributor and financial advisor to President Obama. Remember, Warren Buffett knows how Washington D.C. Works, he has been taught this since his father was a U.S. Congressman in 1942. So when it is all said and done Mr. Buffett is the greatest investor of all time, but he might also be the greatest insider of all time as well.

Nicholas Santiago

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Comment by Vincent Granville on January 8, 2014 at 9:51am

Maybe you can be both at the same time. Isn't investing the art of obtaining and leveraging insider secrets without being caught? One way to do it is by participating in job interviews for the sole purpose of gathering corporate secrets. I've also noticed that each time I was invited to a job interview, the company stock moved up in the next 30 days, as if the fact to hire for highly paid, new (not a replacement) unadvertised positions was by itself a valuable stock trading indicator.

The amount of traffic in the morning commute, though not really an insider secret, is also a good indicator of performance for major indexes: just by measuring how slow or fast your morning commute in the Bay Area has become (after factoring out local effects such as closed bridge or holidays), you can predict movement in stock prices for tech stocks or indices. Note that sometimes, many companies slowly and simultaneously lay off tons of people without making public announcements. You don't really know the economy is worsening, until you realize your morning commute takes much less time because of fewer cars on the highways. Then, it's time to sell some stocks especially if they haven't tanked yet!

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