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Goh Eng Yeow
Markets Correspondent
Buffett’s giant bet
November 04, 2009 Wednesday, 12:48 PM
Goh Eng Yeow comments on the US$26 billion bet made by Warren Buffett as the stock market rally is losing steam.
ONE step forward and two steps back – this seems to be the direction that stock markets across the world are taking after hitting their highs for the year last month. On Tuesday, market jitters were becoming audible, with the Wall Street’s Vix index – which measures the volatility of the S&P 500 Index – hitting its highest level since March. While US stock index futures predicted another jaw-dropping fall on Wall Street, legendary investor Warren Buffett struck the biggest deal of his life – a US$26 billion (S$36.4 billion) purchase of Burlington Northern Santa Fe – in what he labelled as his "all-in wager" on America's economic future. The question again being asked, like last October when he made huge bets on Goldman Sachs and General Electric, is whether Mr Buffett is losing his Midas touch. He was even willing to issue new shares of his highly-prized investment firm Berkshire Hathaway as part of the purchase package to complete the deal. But investors had their eyes firmly fixed on the communiqué to be issued by the US central bank at the end of a two-day interest rates fixing meeting tonight. Despite splurging so much money on a single deal, Mr Buffett failed to move Wall Street at all. The Dow Jones Industrial Averages ended slightly down, spooked by renewed concerns over the business outlook of the US financial giants whose problems had sent the global financial system reeling last year. What to make of all the mixed signals coming from Mr Buffett and the rest of the US markets so far? As I write, the benchmark Straits Times Index is up a meagre 17 points to 2639.03. But it is still way below the high-water mark of 2,716 reached last month. Like investors elsewhere, the players here are keeping their powder dry, as they wait for the dust to settle on the latest bout of market uncertainties. But as my small change column "On the trail of smart money" suggested, a retail investor should track the moves of shrewd market operators like Mr Buffett to time their own purchases for the long-term. Mr Buffett has, as he had succinctly put it, put both his words and money where his mouth is. I guess that even for an investor of Mr Buffett’s age – he is after all pressing on to 80 years old – taking a long-term view of companies and economic trends often wins out when they are temporarily depressed by short-term uncertainties - something which I hope to take up in a future small change column. He may not be making money on his latest "elephant" purchase for years. But then Rome is not built in one day. He may yet be proven right on his latest bet on America’s future. On another note, I have received several queries from readers to my the latest "small-change" column on how they can track insiders' trades. The ST publishes a list of insiders’ trades every Friday which highlight some of the big trades of the week. To get a better handle of the trades themselves, it is best for a reader to identify which corporate titans they wish to follow and the stocks they regularly trade. As these biggies are often the biggest shareholders of the companies, their trades will be reported on the Singapore Exchange website. Just tracking a couple of trades will not give the reader a hang of the views which these insiders hold on their stocks. You will have to track them over time – months or even years to do so. One last note: I have made the effort to write the market blog regularly with a view to give online readers a handle on market directions and highlight possible trading trends. Over time, I hope to attract readers to give their views and turn the blog into a vibrant discussion on the market. The blog has recently attracted comments on topics opposition politics which is inappropriate to the topics being discussed here. I am glad that some readers have endeavoured to point this out to those polluting this blog with their irrelevant comments. Those people who are unhappy about non-stock market issues should really air their grievances elsewhere and leave this space for those who are keen to learn more about the equities market and grow their nest-eggs. Tags: berkshire, buffett, stock, wall street 
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re: singapore airlines
The airline business is a strange one. Most have never made a profit (other than through 'national carrier' subsidies). On SQ I can fly SYD,AU -> Spore return for SGD850 but Spore - > DPS,INDO is SGD1750. The same flight (to DPS,INDO) on Garuda is SGD397.
Since the operating cost of the flight is primarily fuel, and DPS is half the distance of SYD, there is obviously more to the airline business than meets the eye. Most probably anti-competitive agreements made by national governments to protect their own carriers.
The question then is, if the airline business is not a free market, why put national carriers into private ownership? If the airline relies on govt regulation or subsidy to be profitable, then the taxpayer will be paying the private owners. Seems like lose-lose to me.
Wonder what this "market " fellow makes of this!!
We aint talking vegetables and fish, here.
=======
on the SD site.
==============
YOU WONT READ THIS IN THE STAITS..oops.. we mean..THE STRAITS TIMES
>From the NY Times.
Loss at Singapore Air Is More Bad News for Temasek
YOU WONT READ THIS IN THE STAITS..oops.. we mean..THE STRAITS TIMES
>From the NY Times.
Loss at Singapore Air Is More Bad News for Temasek
Temasek Holdings, which in September posted a record 67 percent drop in net profit for the year ended March 31, is still getting bad news from its investments.
Singapore Airlines, which is majority owned by the sovereign wealth fund, reported a worse-than-expected quarterly loss as the global economic slowdown affected profit margins, but said the outlook had improved.
The airline, which warned in July that it might post a full-year loss if tough conditions persisted, had a net loss of 159 million Singaporean dollars, or $114.6 million, for the three months through September, compared with a net profit of 324 million Singaporean dollars a year earlier.
Five analysts polled by Reuters had expected an average net loss of 38 million Singaporean dollars. The loss was narrower than the 307 million Singaporean dollars recorded in the previous three-month period.
“Advance bookings indicate that demand for air travel has stopped declining and is gradually recovering,” Singapore Airlines said in a statement.
The carrier has seen falling passenger and cargo demand this year as the global economic downturn has reduced business and leisure travel, leading the airline to reduce capacity by 11 percent in the 12 months from April. The airline also cut staff salaries and working hours.
Analysts said the growing presence of budget airlines in the region was making life tougher for premium carriers like Singapore Airlines and Japan Airlines. Budget carriers like AirAsia of Malaysia and JetStar of Australia are on an aggressive expansion drive despite the economic downturn.
JAL is undergoing a restructuring and negotiating for further government support after accumulating billions of dollars in losses, while Singapore Airlines has been forced to delay deliveries of eight airplanes from Airbus by 6 to 12 months
The report comes amid tough times for Temasek, which owns 55 percent of the airline. The wealth fund reported a record 67 percent drop in net profit for the year ended March 31, as a collapse in credit markets drove down the value of its stakes including holdings in Bank of America and Barclays.
The fund is trying to get its house in order after a tumultuous year, suffering not only from its bad bets on Western banks, but also a failed experiment to get a prominent outsider as its chief executive.
I refer to the feedback given by Mr Png.
First, an apology. I missed his letter commenting on the column on tracking smart money.
I agree with Mr Png that Mr Buffett's approach has always been about value investing.
But even Mr Buffett had this advice to investors on the timing of investments which was the theme of the sunday times column: "Be fearful when others are greedy, and be greedy when others are fearful."
It is interesting to note that Mr Buffett had made his latest bet, just as uncertainty returns to the market.
cheers,
Dear Goh Eng Yeow,
I believe I sent you a letter last week commenting on your article. I was really hoping that you would reply my mail. Anyhow in my letter, I was asking you to further explain why Buffett bought the shares that he bought back in October 2008. I very much believe that it will further enlighten some readers. This will certainly go a long way for them because the key to investment is not to ride on someone's coattail but to identify a proper strategy and develop it from there. Buffett strategy is always about valuing a company from bottom up. I hope that investors would try to develop their own investment strategy and not coattail blindy. Let us celebrate the core value of Buffett's investment strategy and not cheapen it by asking investors to ride on his coattail.
Regards,
Jevon Png
@Lewis: WHO do you mean..biased and ignorant..lah?
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