Porter Stansberry’s Tales of Investing Terror: The Oracle of Omaha’s Only Obstacles.
Berkshire Hathaway has been one of the biggest investment companies in the United States for quite a long time. Its chief and CEO, Warren Buffett, has built both a large company and a successful personal brand from building this company. Because of his management of this company, Buffett is looked at as a genius, and is given nicknames such as the Oracle of Omaha. Despite all of this success, there is a storm brewing that no one else sees.
Porter Stansberry, founder of Stansberry Research, an investment research firm whose Publications reach 500,000 subscribers, is discussing the key to Berkshire Hathaway’s success. Warren Buffett’s company acquires huge amounts of capital by investing the float, or unpaid claims from the insurance companies that they own. All he has to do was invest in well built companies and reinvest the profits from the float and from the insurance underwriting profits.
This strategy was working quite well for a long time, until Berkshire Hathaway started to change their formula. Stansberry lays out how changing the strategy from buying cheap and reliable Blue Chip companies, to highly regulated expensive energy and commodity companies hurt Buffet’s success. After doing this, Buffett was no longer beating the S&P 500 as he had always done before. He also started to invest largely in banking companies that were only doing marginally well. What really hurt him the most, according to Stansberry, was the stake he made in utility companies. Before, the company was known as a “compounding machine”, it invested its money from insurance float and underwriting into cheap dividend paying companies, and then used the money that it got from those companies to buy more insurance companies. This cycle created more and more capital for Buffett and Berkshire Hathaway. However, Porter Stansberry told us how Buffet’s recent ideas have done their part in destroying this machine.
Stansberry believes that if Buffet had taken his advice just stayed his course, he would still be doing as well as he used to. Perhaps if Buffett started reading the Stansberry Digest, he would not be in the position he is in.