This blog post originally appeared on RealMoney Silver on Jan. 28 at 7:56 a.m. EST.
"The first rule of investing is not to lose; the second rule is not to forget the first rule." -- Warren BuffettOver the past week, I have outlined the potholes in Berkshire Hathaway's ( BRK.A) investment portfolio and the sharp drop in market value in some of Warren Buffett's largest holdings. It was not my intention to overly dramatize the short-term miscues nor was it my intention to understate the remarkable long-term investment achievements of Warren Buffett. It was my intention to underscore that the strategy of investing in companies that have apparent moats to protect their business -- and these moats have been so dear to Buffett's investment strategy over multiple decades -- could either:
- have been abandoned by the Oracle of Omaha, owing to his reluctance to alter/sell off his strategic and principal holdings and maintain a tax-efficient portfolio approach; or
- have been influenced by his mistaken analysis of the changing competitive landscape facing some of his portfolio companies (in other words, the moat has been flooded!).
And if our numbers are right, Buffett just had his worst year since he started managing other people's money back in 1956. Furthermore, it all pretty much happened in just three months. Now, a good chunk of the "loss" comes from a derivatives book that Buffett is not selling any time soon. Assuming the world doesn't come to an end, those near-term losses should reverse in future periods. Furthermore, Buffett is famous for, among many other things, regarding a short-term drop in the value of an investment as a blip on the long-term scale. Once he's made up his mind about the value of an investment, he doesn't allow the market's manic-depressive moods to affect his own perception of that investment's value -- an almost unique trait in a market of manic-depressive investors who see signals in every uptick and downtick on the screen. Now, nobody's crying for Warren Buffett. His investors are as loyal as those Jonestown Kool-Aid drinkers -- and for good reason. His track record has no match. And unlike Bernard Madoff, he's as open about his methods as Paris Hilton about her sex life. -- Jeff Matthews, Ram Partners (Jeff Matthews Is Not Making This Up)Warren Buffett has been blessed with unique and remarkable investment skills. His record of value creation is unprecedented. He is among the wealthiest people in the world. He has also been blessed with a patient (and very rich) investor base, most of whom are willing to accept his losses over the last six months as a speed bump. Nevertheless, despite his past successes (and the vocal opponents to my view), I stand by my conclusion that Warren Buffett's salad days are over and that he has lost some of his groove. And I also stand by my controversial conclusion (outlined yesterday) that, in the fullness of time, Berkshire's common shares might suffer the same fate of many other listed closed-end equity mutual funds; its shares could gradually trade at a discount to its investment value per share -- plus some multiple to pretax profits. Berkshire's upcoming annual meeting will be interesting. I think I will go to Omaha and attend it. Doug Kass writes daily for RealMoney Silver , a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
Know What You Own: American Express operates in the financial credit services industry, and some of the other stocks in the field include Capital One ( COF), Moody's ( MCO), SLM ( SLM), ORIX ( IX), Discover Financial Services ( DFS). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.