Buffett Buffeted but Triumphant: Review of Warren Buffett's Actions and Reactions Beginning with the Financial Crisis of 2008-09

53 Pages Posted: 27 Jan 2014 Last revised: 7 Apr 2015

See all articles by Serge L. Wind

Serge L. Wind

New York University School of Professional Studies (NYUSPS)

Date Written: April 6, 2015

Abstract

Warren Buffett’s major stock investments from 2008 through 2013 are reviewed, accompanied by depictions of some of the public positions he adopted, including the Buffett Rule, which calls for a minimum tax on high incomes. During the illiquidity and credit crisis of 2008-09, he invested about $24 billion in selected companies with strong fundamentals, receiving lucrative returns reflecting the high risk, particularly in the financial sector.

Berkshire Hathaway, Buffett’s conglomerate holding company, exhibited the best risk-adjusted stock return since 1976. Three attributes seem to underlie Buffett’s superior returns: (1) selection of low-beta (i.e., low-risk), high-quality companies, especially when they appear to be undervalued; coupled with (2) use of low-cost leverage (Franzzini, Kabiller and Pedersen, 2013). A third identifiable trait is Buffett’s unique skill in negotiating highly-favorable terms for these acquisitions (Davidoff, 2013a). His stock selection proficiency is enhanced by an exquisite sense of timing, often acquiring companies when relatively cheap or issuing high-return loans to firms temporarily encountering illiquidity.

Keywords: Warren Buffett, risk-adjusted return, beta, leverage, acquisitions, illiquidity, financial crisis of 2008-09, Buffett Rule, Berkshire Hathaway, stock portfolio, derivatives

JEL Classification: G11, G32, G34, M14

Suggested Citation

Wind, Serge L., Buffett Buffeted but Triumphant: Review of Warren Buffett's Actions and Reactions Beginning with the Financial Crisis of 2008-09 (April 6, 2015). Available at SSRN: https://ssrn.com/abstract=2385384 or http://dx.doi.org/10.2139/ssrn.2385384

Serge L. Wind (Contact Author)

New York University School of Professional Studies (NYUSPS) ( email )

11 West 42nd Street, 4th Floor
New York, NY 10036
United States

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