Warren Buffet Investing in Wachovia?

I caught wind of a rumor that Warren Buffet is making an investment in Wachovia. It brings a mixed reaction - I started investing when Wachovia fell to $40/share - its now less then $17/share and WB may have started to step in. Shows me I still have a lot to learn, I might have been on the right track, but very, very premature. Its clear I underestimated the impact to future earnings that the recapitalization and mortgage crisis would have. However, it gives me hope that I am not completely off my investing rocker ;-).

Still lots to learn.

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Comments (9)

2M,

Timing is everything. Even if Warren B. purchasing shares of WB is true, it doesn't change what WB has on their books.

There is still significant downside risk and minimal upside as we continue the slide into summer.

Why not reevaluate your entire portfolio as well as the assumptions you made regarding each of your holdings...I generally set time frames for review that confirm or disprove my original hypotheses.

A well-defined exit strategy for every asset is more important than the original hypothesis for buying, but not many investors understand that. When an equity slides, they are too proud to sell, so they continue to hold through max pain, thinking that it will go back to previous levels.

I encourage you to mentally craft the criteria for exit, whether it be % return, time frame, % loss, etc. It takes discipline, but well worth it to be successful year after year.

Good luck!

Posted by concerned | June 19, 2008 3:51 PM

Even Mr B. isn't perfect, he bought Bank Of America at its peak...it has dropped over 40% since then

Posted by john | June 20, 2008 11:56 AM

True Lesson: don't buy individual stocks; you're taking on an unnecessary amount of risk. WB has to rise 135% just to you to breakeven.

Make bet on capitalism by holding two index funds: one tracking the entire US market, and one tracking the international market; Vanguard is a good place to look. Put 50% in each fund and rebalance annually.

Instead of spending (wasting?) time on things you CAN'T be great at (stock picking) spend your time and energy on things you CAN improve upon (spirituality, relationships, fitness).

Posted by CPA1298 | June 20, 2008 4:03 PM

If you were actually buying WB at $40 you are definitely off your investment rocker. And the reason CDS tightens even as the stock falls is because if someone is going to inject capital its going to be at a significant discount to the market price and will significantly dilute shareholders. WB has a market cap of 34bn right now. Let's say Buffet comes in and injects 10bn. That dilutes shareholders by about 23% but shores about the capital structure where bondholders get paid out first - thus the CDS tightening and shares falling.

Posted by JD | June 21, 2008 10:56 AM

Would you consider a switch to 100% passive management?

Posted by pj | June 24, 2008 12:10 AM

Buffet is an exceptional investor, but that doesn't always make him right. For example, he held coke when it was at 7), but didn't sell and sat on stock when it was at 41 for years. Also, he took a big position in H&R block, which has seen a LOT of negative press.

Buffett is the oracle of omaha to be sure. But, keep in mind that oracles are not right 100% of the time.

Posted by James | June 24, 2008 12:58 AM

Buffet sold his silver below $7 it is about $17 now.

Buffet bought Pier 1 at the top of the housing bubble.

Buffet bought a furniture maker at the top of the housing bubble.

If anything, I fade him.

Posted by Dave Allen | June 24, 2008 10:45 AM

Ok ok ok - I was looking for ways to rationalize my investment. I am not saying WB is always right, but if he is investing its reaffirming for me. Maybe I am off my investment rocker.

Posted by 2million | June 26, 2008 1:55 AM

Don't sweat going in too early. Had I not been such a procrastinator, I would have jumped into WaMu when it tanked to 28. Note that it is sitting on ~4 right now.
For the long-term investor, most big banks seem like a good choice at the moment.

Posted by Cincinnati | August 13, 2008 10:07 PM