Berkshire Ruminations

Tuesday, October 02, 2007

Kent Brockman, reporting live...

I have to admit this is not the best market for a long-term value investor like me. This is a trader’s market. Nevermind the enormous volatility the market has experienced in the last six months or so, there seems to be a good deal of outright craziness in investor behavior. I pay attention most closely to Berkshire Hathaway news of course, so perhaps my perception is biased. But can anyone tell me why stock prices are reacting to pure media speculation?

Who are these people that started the rumor last month that Berkshire was going to buy Countrywide? More importantly, who were the people that took the reports of it seriously? There is absolutely no factual basis whatsoever, yet Countrywide stock shot up in reaction. Given the necessary access to the talking heads everyone seems to so blindly believe, I suppose I could have thrown that idea out there and potentially profited nicely myself.

Then, a few weeks later, they said the same thing about Bear Stearns. Again, not a shred of evidence, yet the stock shoots up. Did we not learn our lesson the first time? The rumor du jour is now Capital One for anyone interested, this one spurred by Jim Cramer. Again, folks, please give me some hard facts before manipulating stock prices like this.

Perhaps it’s the market wishfully looking for some direction in the uncertain (in fact, confused) credit markets. What better sign that things won’t get so bad after all than Warren Buffett taking a large stake in an institution heavily affected? That is what investors would like to see. Unfortunately it probably won’t happen. The lending industry is facing some very serious problems and nobody knows how it will all play out.

I certainly am not qualified to predict the direction of the economy. But I can say there is a nonzero probability that we will end up in some sort of recession. In the meantime, all this uncertainty creates an environment in which the sanguine rumor can flourish. A friend of mine and outstanding blogger, Chad Brand of the Peridot Capitalist, recently commented very poignantly on the credence given to the financial media and the problems it creates.

I think it is important to remember that those publishing or reporting in the financial media are journalists first, and economists or businessmen second. Just as we crave sensational stories in the popular media like OJ, Paris Hilton etc, we crave feel-good stories in the financial media. And those media, wanting to feed our craving, oblige.

Come to think of it, I once read somewhere that you can’t believe everything you read…

FD: Long Berkshire, no other position


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