Buffettisms: Sub-Prime Market
If there was ever a man that symbolized the pinnacle of sustainable investment practices, it is Warren Buffett. One of my favorite times of the year is when his “Letter to the Shareholders” is published. It is even better if you get to see him reading it with Charlie Munger at his side. These two guys are not some academics with little practical experience nor are they the converse. Their combined investment and management track record is unmatched and speaks for itself.
I recently finished reading the 2006 Chairman’s Letter and was reminded once again how his simple investment philosophy embraces commonsense sustainable practices. There were so many examples in his latest letter that I have decided to publish periodic nuggets of his Buffettisms as they apply to sustainable business practices.
What? He is no treehugger? His companies are not enviro friendly? That is not what I am talking about. I do not think anyone ever looked at his portfolio companies under the triple bottom line lens but what I will tell you is that if you run your company with the simple philosophy of creating sustainable profits, you naturally start to pay attention to the other two portions of the triple bottom line. I do not have the data to support my theory but that is one of the drives behind this blog... to collect that data so you can decide. If anyone can think of a way of helping me out, I am all ears.
Enough blabbing, here is a timely snippet:
“The slowdown in residential real estate activity stems in part from the weakened lending practices of recent years. The “optional” contracts and “teaser” rates that have been popular have allowed borrowers to make payments in the early years of their mortgages that fall far short of covering normal interest costs. Naturally, there are few defaults when virtually nothing is required of a borrower. As a cynic has said, “A rolling loan gathers no loss.” But payments not made add to principal, and borrowers who can’t afford
normal monthly payments early on are hit later with above-normal monthly obligations. This is the Scarlett O’Hara scenario: “I’ll think about that tomorrow.” For many home owners, “tomorrow” has now arrived. Consequently there is a huge overhang of offerings in several of HomeServices’ markets.”
Thursday, March 15, 2007
Picture from CNN
