Tag Archives: warren buffet
Iran, Nuclear Policy, and America: An Investment Opportunity In Disaster?
Posted on 24. Jan, 2012 by Wilensky.
We have a delicate balancing act at hand between the threat of an emerging nuclear power, our rapacious thirst for oil, and responsible diplomatic policy. The consternation in the air is palpable, bringing to mind Buffet’s famous words “Be fearful when others are greedy and greedy when others are fearful”. So how does one put such words of wisdom into an actionable trade idea? Since going long nuclear fallout seems short sighted, let’s look at how to take advantage of a potential event driven jump in the price of oil once we fully grasp the situation at hand.
At the mentioning of the country results in a harsh, metallic taste of uncertainty and fear in the back of your mouth when you consider the effects on your portfolio. Developing a perspective on the state of affairs is difficult, especially solely from sorting through headline after headline; from the motorcycle delivered assassination of nuclear scientist Mostafa Ahmadi Roshan on Wednesday near Iran’s main enrichment facility to Europe’s proposed boycott of Iranian crude, to the menacing threat of a barricade in the Strait of Hormuz.
Lets break things down and set the scene so we can take a more accurate look. We have two main catalysts; the increasing threat that Iran poses to the rest of the world and of course, oil. It was most recently reported that Iran’s nuclear program had passed the low enrichment rate of 3-5% and begun to reach the threshold of weapons grade uranium, breeching the 20% level which is sufficient enough for a crude yet effective nuclear weapon. The assassination of Roshan yesterday only supports this theory, suggesting the program had progressed far enough to merit a public killing regardless of the political fallout. While the nuclear threat from Iran doesn’t seem all that immediate (at least until they find another sucker to be Director), former CIA chief Michael Hayden still feels the country ” ..is the single greatest destabilizing element right now with regards to global security”.
Fear aside, this brings us to the second catalyst: oil. One fifth of the world’s oil passes through the 34 mile wide channel, accounting for 35% of all waterborne oil traffic.. an ideal conduit for a battered and beaten nation to draw in an unwavering audience.
Now Iran gets pushed around quite a bit, with the most recent abuse in the form of sanctions against all crude oil exported from the nation; starting what Iran has referred to as an “economic war” on the country’s largest export. A ten day long display of naval tactics in the Strait was just the beginning for Iran’s government, stating that “if sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz.” Responding in turn, the US Navy ordered a second Carrier Battle Group into the region, just to keep an eye on things (which must make China feel all warm and fuzzy inside).
So now that we have pieced together a relatively coherent picture of the different catalysts in the scenario that could lead to a spike in oil prices, lets take a look at how to best position for such an event.
1. In an effort to reduce variables in such a complex and politically driven scenario, a simple strategy is highly recommended for the average investor. One of the easiest and cheapest options to develop a position is through buying the corresponding ETF, although since these funds generally invest in near term futures contracts due to the difficulty of holding the physical asset there is potential for some tracking error on the part of the fund.
2. Another option that provides a more direct investment is to own the actual oil companies (SLB, HES, HAL, XOM, etc.) Although also relatively inexpensive in terms of trade costs, this strategy subjects you to the headline risk of the individual companies rather than limiting your exposure directly to the price of oil. This strategy also lacks a guarantee that the correlation between oil company and oil price will appreciate in line with each other.
3. Which brings us to a play more directly linked to the movement in the price of oil and involves less capital than option 1 and option 2: buying options on the futures contracts. Each contract is for 1,000 barrels and a $.01 move in the price per barrel equals a $10 move in contract price. The pricing of these options requires some understanding of both the futures markets and options strategies, so is not appropriate for the average investor.
While some sort of drama ensuing from the Middle East debacle seems imminent, there is no guarantee that events will play out as expected and oil prices will respond in turn. Buying stock in a solid, multi national company with a strong balance sheet and diversified portfolio of assets might be a safer play on the chance that Iran can agree to some sort of terms on their Nuclear development program.
Girding for Post-Buffett Era, Berkshire Adds Fresh Investment Manager
Posted on 12. Sep, 2011 by Maxwell Leary.
NEW YORK—Warren Buffett plucked a second little-known hedge-fund manager from obscurity to handle a portion of Berkshire Hathaway Inc.’s investment portfolio.
The selection of Ted Weschler, managing partner of Charlottesville, Va.-based Peninsula Capital Advisors, is the most recent move to prepare Berkshire for the day when Mr. Buffett, 81 years old, will no longer run the company.
Mr. Weschler, 50, will join Todd Combs, selected by Mr. Buffett last year, in handling a fraction of Berkshire’s equity portfolio for the time being. When Mr. Buffett steps aside, the two men, and perhaps a third person, will have responsibility for all of Berkshire’s equity and debt portfolio, Berkshire said in a statement.
Mr. Weschler told investors in his hedge fund that he will be winding down the fund as he prepares to join Berkshire early next year, the statement said.
“With Todd and Ted on board, Berkshire is well positioned for successor investment management at the time Mr. Buffett is no longer CEO,” the statement said.
Mr. Weschler didn’t immediately respond to a request for comment. His fund, which he has run for more than a decade, held positions in nine stocks valued at a total of $2 billion as of June 30, according to a regulatory filing. According to an article on Fortune’s website, Peninsula also holds short positions that don’t have to be disclosed in the filing.
Peninsula’s largest position was a 1.4% stake in DirecTV Group Inc. The holding was worth about $508 million at June 30.
Berkshire Hathaway Chairman Warren Buffett
According to Fortune, Mr. Weschler appeared on Mr. Buffett’s radar when he won Mr. Buffett’s annual charity auction with a bid of $2,626,311 in 2010. He won again this year, topping his prior-year bid by $100. The winner of the auction gets to dine with Mr. Buffett.
Winners of the auction are usually announced by the Glide Foundation, the San Francisco-based charity that receives the proceeds. Mr. Weschler had elected to remain anonymous until Monday, when Fortune revealed that he had been the top bidder.
It was at the second meal that Mr. Buffett asked Mr. Weschler to shut down his hedge fund and work for Berkshire, Fortune reported.
Mr. Weschler told Mr. Buffett he’d take the job “within weeks” of the July 26 meeting, according to Fortune.
In recent years, Mr. Weschler has made several donations to Republicans and Democrats, according to OpenSecrets.org, a site that tracks political contributions.
In 2010, Mr. Weschler gave $10,000 to both the Democratic Party of Virginia and the Republican State Committee of Delaware, according to OpenSecrets. In 2009, he gave to Michael Castle, a former Republican governor of Delaware and former member of the U.S. House of Representatives, according to the site. That same year, he gave to Robert Wittman, a Republican representative for Virginia’s 1st congressional district and Tom Perriello, a former Democratic representative of Virgina’s 5th congressional district, according to the site.
Buffett’s Berkshire to Invest $5 Billion in Bank of America
Posted on 25. Aug, 2011 by Maxwell Leary.
Aug. 25 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. agreed to
invest $5 billion in Bank of America Corp., aiding a lender hobbled by costs
tied to subprime mortgages.
Buffett’s company will get a 6 percent dividend on his preferred
stock investment and warrants to buy 700 million common shares about $7.14 each,
according to a Business Wire statement today from Omaha, Nebraska-based
Berkshire.
–Editor: Dan Kraut
Full article available @:
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