The Anatomy of Financial Crises: Understanding Their Causes and Consequences

Crises have been a feature of the financial landscape for hundreds of years. They often appear with little warning, as the sub-prime mortgage crisis of 2007 and the Asian crisis of 1997-1998 illustrate. It's not always clear what causes crises, whether they can be avoided and how their impact can be reduced. A recent book, titled Understanding Financial Crises (Oxford University Press), by Wharton finance professor Franklin Allen and Douglas Gale, a professor of economics at New York University, tackles this subject from a number of different angles. The authors review the history of financial crises in addition to offering their own approach to examining the underlying causes. Allen and Gale also discuss asset price volatility, the interaction between banks and markets, bubbles and financial contagion, among other topics.

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We are smarter than me: How the wisdom of crowds can help businesses succeed

In We Are Smarter than Me (Wharton School Publishing), authors Barry Libert and Jon Spector -- and a community of more than 4,000 people who contributed insights to the book -- illustrate how businesses can profit from the wisdom of crowds. Using case studies from product development, manufacturing, marketing, customer service, finance and management, the book, whose subtitle is How to Unleash the Power of Crowds in Your Business, shows what works, and what doesn't, when managers try to build community into their decision making.

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Transcript: Pimco’s Bill Gross on recession, investments and subprime

Bill Gross, founder and managing director of Pimco, discussed interest rates, recession, investments, Mohamed El-Erian, subprime and government intervention with Chrystia Freeland, the FT’s US managing editor.

FT: US interest rates?
MR GROSS: Long.

FT: Hillary Clinton?
MR GROSS: Long.

FT: Oil?
MR GROSS: Short.

FT: Manhattan real estate?
MR GROSS: Short.

FT: Hedge funds?
MR GROSS: Short.

FT: Mitt Romney?
MR GROSS: Short.

FT: The euro?
MR GROSS: Short.

FT: Ben Bernanke?
MR GROSS: Long.

FT: Barack Obama?
MR GROSS: Long.

FT: China?
MR GROSS: Long! [laughs]

Interview I

Interview II

The Global Economy’s Inevitable Hard Landing

In recent weeks, the global liquidity and credit crunch that started last August has become more severe. This is easy to show: in the United States, the euro zone, and the United Kingdom, spreads between Libor interest rates (at which banks lend to each other) and central bank interest rates – as well as government bonds – are extremely high, and have grown since the crisis began. This signals risk aversion and mistrust of counterparties.

To be sure, major central banks have injected dozens of billions of dollars of liquidity into the commercial banking sector, and the US Federal Reserve, the Bank of England, and the Bank of Canada have lowered their interest rates. But worsening financial conditions prove that this policy response has failed miserably.

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Warren Buffett's "Bet on America": The Complete CNBC Interview

In a live interview this morning on CNBC's Squawk Box, Warren Buffett called his purchase of a big Marmon stake as a "bet on America over a long time." He also revealed that while he has been approached by financials companies about buying a stake, "we have not seen a deal that causes me to start salivating." A summary appears in the WBW post Warren Buffett tells CNBC He's Been Approached by Financials But Hasn't Seen Anything He Likes So Far.

Interview Transcript

Thomas Russo Says Marmon Stake to "Deepen" Berkshire's Business: Video

Berkshire Hathaway Inc. to Acquire 60% of Pritzker Family Company, Marmon Holdings, Inc.

Berkshire Hathaway Chairman and CEO Warren Buffett and Tom Pritzker, Chairman of Marmon Holdings today announced that Berkshire will purchase 60% of Marmon Holdings, Inc., a private company owned by trusts for the benefit of members of the Pritzker Family of Chicago.
The closing is anticipated to occur in the first quarter of 2008. Prior to closing, Marmon will make a substantial distribution of cash and certain assets to the selling shareholders. At closing Berkshire will acquire 60% of Marmon for $4.5 billion. The remaining 40% will be acquired through staged acquisitions over a five to six year period for consideration to be based on the future earnings of Marmon. The transaction remains subject to customary closing conditions, including regulatory approvals.

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Marmon Holdings Inc's Profile

Marmon Holdings Inc's Financials

Warren Buffett Watch's 8 Predictions for '08 - And Beyond

1. Recessions can't be avoided forever.

2. We'll survive future recessions just as we've survived past problems.

3. Recessions will create opportunities.

4. All stocks won't be cheap.

5. The crowd will make mistakes.

6. Investors will mistakenly think falling stock prices are bad.

7. Good times will prompt bad decisions.

8. There will be more dancing at another wild party followed by another painful hangover.

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The Art of the Deal

How the Nahmad family made billions trading art, and why so many people in the art world can't stand them.

On the evening of Nov. 6, in the packed Rockefeller Center salesroom of Christie's auction house, four buyers were vying for a 1955 Picasso oil of Jacqueline, the artist's second wife. As the bidding quickly rose above $20 million, five members of a family of international art dealers named Nahmad watched from their seats in the middle of the expensively attired crowd. David Nahmad, 60, together with his two older brothers, had purchased the painting in May 1995 at Sotheby's for $2.6 million. The winning bid: $30.8 million, including the auction house's 12% commission. The family made a tenfold gain over a 12-year holding period. It was a profitable night, indeed, for the Nahmads. Earlier a Modigliani they had bought privately in London five months before for $18 million had also sold for $30.8 million.

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The great dying: a memo to market dinosaurs

“Just as some species become extinct in nature, some new financing techniques may prove to be less successful than others.”

The remark was made to the US Congress in September by Anthony Ryan, assistant Treasury secretary. Only when we know the true magnitude of the current financial crisis will we be able fully to appreciate the significance of his words.

Analogies between finance and evolution are in themselves nothing new. “The survival of the fittest” is a phrase that aggressive traders like to use. “It’s Darwinian out there” is a stock utterance by hedge fund managers after an especially tough week. Back in November 2005, a conference hosted by Goldman Sachs, the investment bank, was entitled “The Evolution of Excellence”.

Yet, as became clear at that gathering, when financial practitioners use such terms they seldom understand just how apposite they are. A long-run historical analysis of the development of financial services, going all the way back to the days of Charles Darwin, strongly suggests that evolutionary forces are as much at work in the realm of money as they are in the natural world.

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Charlie Munger's 10 Rules for Investment Success

Those of you lucky enough to attend a Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) annual shareholder meeting have undoubtedly heard Charlie Munger say, "I have nothing to add."

In reality, the guy has quite a bit to add. Thankfully for us, Munger is almost as forthcoming with his investment thoughts as his pal Warren Buffett. In his must-read book, Poor Charlie's Almanac, Munger puts forth a 10-step checklist that even the most inexperienced investors could benefit from.

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Mark Sellers, Intelligent Investor

I recently chatted with Mark Sellers, founder of Sellers Capital. The hedge fund boasts roughly $115 million in assets and annualized returns of 35% (before fees) since inception, including a 45% year-to-date return.

In the hour or so I spent on the phone, I learned a great deal about topics like measuring downside risk, evaluating management, and dealing with volatility:

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Warren Buffett Updates

This is a transcript and video clip of the first part of Warren Buffett's live interview this morning on Squawk on the Street with CNBC's Becky Quick, in which he talks about the Federal Reserve, the U.S. dollar, the economy, and how his retail businesses are doing this holiday season.

Video and Transcript (1 of 2)

This is a transcript and video clip of the second part of Warren Buffett's live interview this morning on Squawk on the Street with CNBC's Becky Quick. In this section, Buffett talks about the super-SIV proposal, the Bush administration's plan to encourage lenders to freeze some variable mortgage rates and about why he supports Hillary Clinton and Barack Obama for president.

Video and Transcript (2 of 2)

Berkshire Hathaway Is Poised to Surpass $150,000

Berkshire Hathaway Inc. is poised to close above $150,000 for the first time as investors bet on Chairman Warren Buffett's ability to steer the company through turmoil in financial markets.

The company's Class A shares have risen 34 percent since Aug. 15, beating the 5 percent advance by the Standard & Poor's 500 Index. Berkshire traded as high as $151,650 today, a record and 100 times the next highest-priced company on the New York Stock Exchange, Nasdaq Stock Market or American Stock Exchange, according to data compiled by Bloomberg.

Buffett may find bargain-priced securities as more than $70 billion in bank losses from bad home loans in the U.S. drive shares lower worldwide. His stock investments generated twice the return of the S&P 500 during the past three decades, according to research by Gerald Martin of American University in Washington and John Puthenpurackal of the University of Nevada, Las Vegas.

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Buffett says economy close to recession

Billionaire investor Warren Buffett said the United States could slip into a recession if the jobless rate increases, he told CNBC television on Tuesday.

In a series of interviews throughout the day, Buffett, who built Berkshire Hathaway (NYSE:BRK-A - News) into a $205 billion conglomerate, gave a sobering view of the economy's prospects, including the assessment that holiday retail sales were not looking good despite a post-Thanksgiving holiday burst.

Consumer spending is seen as a key buffer preventing a weaker U.S. economy from sliding into recession as the housing market continues its free-fall and the banking sector remains challenged by a credit crisis.

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Fool Awards 2007: Investor of the Year

The Motley Fool online editorial team, through colorful debate and careful deliberation, has settled on five nominees for the 2007 Investor of the Year award. We've set the nominees, but the final vote belongs to you, the readers.

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Interview Excerpts: Volcker, Soros, Others Weigh In on Mortgage Crisis

An examination of the current U.S. mortgage crisis shows that it is comparable to some of the biggest financial disasters of the past half-century. Here are excerpts from interviews about the mortgage crisis with George Soros, Paul Volcker, William Seidman and Robert Shiller.

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Tug of War: Rationality vs. Regret

ASIDE from having opposable thumbs, what makes us human surely includes our sense of humor, the awareness of our own mortality — and, I would argue, the ability to want what we can’t afford.

Wanting something you don’t have the money to buy is painful enough. The torment is made even worse when you can almost, just about, very nearly afford it — honey, can you do the math again? — but probably can’t.

My husband and I found ourselves in this bind when we stumbled upon a gem of a house recently — just the sort of home we had hoped to find someday.

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Tracing Business Acumen to Dyslexia

It has long been known that dyslexics are drawn to running their own businesses, where they can get around their weaknesses in reading and writing and play on their strengths. But a new study of entrepreneurs in the United States suggests that dyslexia is much more common among small-business owners than even the experts had thought.

The report, compiled by Julie Logan, a professor of entrepreneurship at the Cass Business School in London, found that more than a third of the entrepreneurs she had surveyed — 35 percent — identified themselves as dyslexic. The study also concluded that dyslexics were more likely than nondyslexics to delegate authority, to excel in oral communication and problem solving and were twice as likely to own two or more businesses.

“We found that dyslexics who succeed had overcome an awful lot in their lives by developing compensatory skills,” Professor Logan said in an interview. “If you tell your friends and acquaintances that you plan to start a business, you’ll hear over and over, ‘It won’t work. It can’t be done.’ But dyslexics are extraordinarily creative about maneuvering their way around problems.”

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Dollars and Depression

The falling dollar has emerged as a source of profound global macroeconomic distress. The question now is how bad that distress will become. Is the world economy at risk?

There are two possibilities. If global savers and investors expect the dollar’s depreciation to continue, they will flee the currency unless they are compensated appropriately for keeping their money in the US and its assets, implying that the gap between US and foreign interest rates will widen. As a result, the cost of capital in the US will soar, discouraging investment and reducing consumption spending as high interest rates depress the value of households’ principal assets: their houses.

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Whitney Tilson: Look beyond generalisations

I'm always surprised by the sweeping generalisations made by financial commentators during times of market distress. To say that in the current environment shares of companies in the financial sector are "oversold" or "already discounting a recession" or "poised to fall much further" is a simplistic view that doesn't reflect the diversity of businesses, companies and risks present among financial firms.

Out-of-favour sectors, of course, are great places to prospect for investment ideas - precisely because of the market's tendency to make broad generalisations. The fact is that within any giant sector such as financial services, there will obviously be companies in better or worse competitive positions, with stronger or weaker balance sheets and more or less capable management. In times of uncertainty, the less discriminating the market is of such differences, the more opportunity for smart investors to take advantage.

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Bill Miller Still Sees Value in Beleaguered Financial Stocks

Legendary fund manager Bill Miller can still draw a crowd, even after a couple of disappointing years.

The manager of Legg Mason's (LM) Value Trust (LMVTX) fund, who beat the S&P 500 for 15 years in a row until his streak ended in 2006, spoke to the press Tuesday about his concerns that the mortgage crisis could push the U.S. economy into recession and his views that, in the long term, many financial, consumer and homebuilder stocks are still good investments.
Value Trust is well off the S&P's performance this year, too. But to underscore how exceptional that 15-year run is, the funds with the longest active streaks beating the S&P 500 are at only eight years.

Miller's exceptional long-term performance means, among other things, that a lot of market watchers pay attention to what he says.

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Bill Miller's simple plan for Citi

Bill Miller, the legendary Legg Mason Value Trust fund manager, owns shares of Citigroup, the embattled financial services giant that is looking for a new chief executive officer. And Miller has a suggestion about the type of person that the bank should hire to replace the ousted Charles Prince.

He said the bank should find someone who has a similar management style to Hewlett-Packard CEO Mark Hurd. Hurd replaced Carly Fiorina in 2005 and has led a dramatic turnaround at HP, mainly by cutting costs and focusing the computer company on what it does best.

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The Next Dominos: Junk Bond And Counterparty Risk

The subprime problem, we were told, would not spread to other markets. It would be "contained." And it has, according to Jim Grant. He quipped last week that it has been contained on planet Earth. The risks coming from rising defaults in the US (now above 600,000 and rising from just 200,000 a few years ago) are clearly spreading to markets far beyond the subprime world.

This week's Outside the Box talks about the next two dominoes that could fall: junk bonds and counterparty risk in the various credit default swap markets. Ted Seides is the Director of Investments at Protégé Partners, LLC, a hybrid fund of funds that invests in and seeds small, specialized hedge funds. He writes this week's piece in Peter Bernstein's Economic and Portfolio Strategy, one of the most respected of market analysis letters. You can learn more about the letter at www.peterlbernsteininc.com.

This piece is a little longer than most letters, but it is one of the more important editions of Outside the Box this year. This is a must read. You absolutely need to understand the nature of the systemic risk we are facing, and Ted does a great job of explaining in very clear terms the nature of the risks that we have created din our modern markets. I have left the footnotes in, and they are at the end of the letter.

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Buffett's Berkshire buys $2B in TXU bonds

Warren Buffett put $2 billion of Berkshire Hathaway's cash to work at the end of last week when the company purchased high-yielding bonds issued by Dallas-based power producer TXU Corp., according to a person familiar with the deal.

TXU was bought earlier this year in a landmark $45 billion leveraged buyout led by Kohlberg Kravis Roberts. As with many LBOs carried out in buoyant markets, banks agreed to make large so-called bridge loans to help finance the deal, but they got stuck with those loans when demand dried up for LBO-related debt. TXU can now use the proceeds from the bond sale, whose total size was $3.9 billion, to help pay down the bridge loans. The bonds were issued through a subsidiary.

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The Many Errors in Thinking About Mistakes

“I think it’s a very difficult subject,” said Paul J. H. Schoemaker, chairman of Decision Strategies International and teaches marketing at the Wharton School of the University of Pennsylvania. “There’s a lot of ambivalence around making mistakes.”

On one hand, as children we’re taught that everyone makes mistakes and that the great thinkers and inventors embraced them. Thomas Edison’s famous quote is often inscribed in schools and children’s museums: “I have not failed. I have just found ten thousand ways that won’t work.”

On the other hand, good grades are usually a reward for doing things right, not making errors. Compliments are given for having the correct answer and, in fact, the wrong one may elicit scorn from classmates.

We grow up with a mixed message: making mistakes is a necessary learning tool, but we should avoid them.

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The Long and Short of It at Goldman Sachs

FOR decades now, as a writer, economist and scold, I have been receiving letters from thoughtful readers. Many of them have warned me about the dangers of a secret government running the world, organized by the Trilateral Commission, or the Ford Foundation, or the Big Oil companies or, of course, world Jewry.

I always scoff at these letters. The world is far too complex a place to be run by any one group. But the closest I have recently seen to such a world-running body would have to be a certain large investment bank, whose alums are routinely Treasury secretaries, high advisers to presidents, and occasionally a governor or United States senator.

This all started percolating in my fevered brain last week when a frequent correspondent, a gent in Florida who is sure economic disaster lies ahead (and he may be right, but he’s not), forwarded a newsletter from a highly placed economist at Goldman Sachs named Jan Hatzius.

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The Weitz Funds Conference Call Transcript

This is Wally. I'm here with Brad Hinton and Tom Carney, and we welcome you to the call. I hear there are 48 people at this point. It's been a while since we did one of these calls. I think we felt like we got to the point where we didn't have much to say a year or two ago and now there does seem to be more to talk about and we invited questions. We got quite a few and the three of us will spend, we haven't timed this, but maybe 15 minutes or so talking about the things that seem to be of most interest. Strangely enough there is one stock that seemed to dominate the questions and most of them were politely worded.

At any rate, we're going to start right in with Countrywide Financial (CFC). I wrote some about it in the third quarter letter to shareholders. Things change daily in the mortgage world these days though, so here is a summary of where we are and how we got where we are and what we plan to do going forward.

With Countrywide we really focused on credit; knowing that there were a lot of mortgages held at the bank, that they were holding residuals from securitizations, that they had a pipeline that held lots of mortgages in between the time of origination and the time they were sold. We stress-tested the portfolio and I think we've really been pretty much on target so far about their exposure to credit losses.

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Warren Buffett's Video Tour of Berkshire Hathaway Headquarters Continues: Why 'Durable Competitive Advantage' Matters

Buffett: The picture of the Berkshire is right here. Here we are. Nice orderly office, and right up there is a photo of the big Hathaway Mill in New Bedford, Mass. That was there in 1960, well, I bought the first stock in '62, then in '65 when I took control, now it was over a million square feet. It had probably 50 million dollars of replacement value of machinery and equipment in there. When we finally gave up on the textile business 20 years later, we got less than $200,000 sold for scrap iron. And for that building which is over a million square feet, I got minus $250,000. I have to give up money. So that's, it shows you that gap accounting figures and fixed assets and all that, really don't mean much. It's much better on the Coca-Cola trademark than it is on a bunch of buildings and machinery.

Becky: You know, I never thought about it before, but part of what we're focusing on is just the idea of you going global and looking around and that's an early example of globalization and how it changed your investment theory.

Buffett: In the early, a century plus ago, if you lived in New England, you measured your wealth by looms and bobbins just like people in the Midwest measured their wealth by acres of land. And it turned to dust, basically.

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Simons at Renaissance Cracks Code, Doubling Assets

On a hot afternoon in September, Renaissance Technologies LLC founder Jim Simons is too busy to take a phone call. It is, he says, from Cumrun Vafa, a preeminent Harvard University professor and expert on string theory, which describes the building blocks of the universe as extended one-dimensional filaments.

"Get another time when I can talk to him,'' Simons tells his assistant.

Then he mentions that the next day, he'll be meeting with Thomas Insel, director of the National Institute of Mental Health, to discuss autism research. And he's slated that Saturday to host a gala honoring Math for America, or MFA, a four-year-old nonprofit he started that provides stipends to New York City math teachers.

"I'm undoubtedly involved in too many things at the same time,'' Simons says in his 35th-floor office in midtown Manhattan. "But you make your life interesting.''
String theory, autism, math education: It's fair to ask how Simons, 69, manages his day job overseeing the world's biggest hedge fund firm. The answer, judging from the numbers, is very well.

Renaissance is on fire: Its Medallion Fund -- which uses computers and trading algorithms to invest in world markets -- returned more than 50 percent in the first three quarters of 2007. It had about $6 billion in assets as of July 1.

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Beware our shadow banking system

The tangled web of subprimes has claimed more than its share of victims in recent months: homeowners by the hundreds of thousands, to be sure, but also those who created, packaged, insured, distributed, and ultimately bought what should have been labeled "junk mortgages" but which by a masterstroke of marketing genius received a more respectable imprimatur.

"Skim milk masquerades as cream," warned Gilbert and Sullivan over a century ago, and sure enough, today's subprimes, packaged into financial conduits with monikers such as SIVs and CDOs, pretended to be AAA-rated cubes of butter.

Financial institutions fell for the ruse, and now we all suffer the consequences. Defaults are rising, the dollar's sinking, and -- good Lord! -- even Google's (Charts, Fortune 500) stock price is going down. Something must really be wrong.

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Low-risk trades put all others in the shade

Within the hedge fund industry there are some trades that are destined to live on in legend: Jessie Livermore’s claimed $100m profit from shorting the 1929 crash, Paul Tudor Jones’ prediction of the 1987 crash, from which he doubled his money in a month, or the $1bn profit George Soros reputedly made when sterling was forced out of the exchange rate mechanism.

But the forecast last year by a select group of hedge funds of a crisis in subprime mortgages has put even the most spectacular trades in history in the shade.

Leading the pack of hedge funds which benefited from the subprime fallout is John Paulson’s New York-based Paulson & Co. Last year, it raised $2bn for two funds betting on falls in subprime mortgage-linked securities and they are now worth more than $8bn. By the end of October, the first of these funds was up 550.8 per cent, even after fees which included a quarter of profits.

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Breaking Down Berkshire's Equitas Deal

In October 2006, National Indemnity, a unit of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), signed a landmark deal to assume the assets, liabilities, and operations of Equitas, formed by Lloyds of London to assume its liabilities on policies written prior to 1992. As part of the deal, Berkshire agreed to provide Equitas as much as $7 billion in reinsurance coverage.
Figuring out how Berkshire makes money on these types of deals could help Fools understand Berkshire's insurance business better -- and gain insight into Buffett's and Berkshire reinsurance chief Ajit Jain's methods.

To provide some illumination, I contacted Marc Mayerson, a Harvard Law graduate and partner of Washington, D.C., law firm Spriggs & Hollingsworth. Mayerson also leads several national American Bar Association seminars devoted to Equitas, and provides analysis of Equitas' financial reports on his blog, InsuranceScrawl. The following is an email interview conducted with Marc; notes in italics are my comments.

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Prem Watsa: He has never been more bearish

The head of Fairfax Financial had a front-row seat when the Japanese market began its 15-year retreat. And he thinks the U.S. indexes might be about to do the same.

The global credit squeeze is in its "early days," says investor Prem Watsa, who is so bearish that his insurance company has stashed the bulk of its $18-billion investment portfolio into ultrasafe government bonds.

In a rare interview, the chairman of Fairfax Financial Holdings Ltd. said he thinks it's possible the United States is on the cusp of a prolonged market slide, similar to the one endured by Japan between 1990 and 2003, when the Nikkei index plunged 80 per cent.

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A Time for Bold Thinking on Housing

WE have to consider the possibility that the housing price downturn will eventually be as big as that of the last truly big decline, from 1925 to 1933, when prices fell by a total of 30 percent.

As of this August, domestic home prices were already down 5 percent from their peak 14 months earlier, according to the S.& P./Case-Shiller Composite Home Price Index, and prices were falling at a faster rate in the months leading up to August. (Updated data will appear on Tuesday.)

This crisis should be an occasion for some inspired thinking about fundamental changes in our real estate institutions. The actions that have already been taken are not impressive. The housing market is worsening, and more and more home owners are getting into trouble with their mortgages.

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Imagining Recession

The world’s housing, oil, and stock markets have been plunged into turmoil in recent months. Yet consumer confidence, capital expenditure, and hiring have yet to take a sharp hit. Why?

Ultimately, consumer and business confidence are mostly irrational. The psychology of the markets is dominated by the public images that we have in mind from day to day, and that form the basis of our imaginations and of the stories we tell each other.

Popular images of past disasters are part of our folklore, often buried in the dim reaches of our memory, but re-emerging to trouble us from time to time. Like traditional myths, such graphic, shared images embody fears that are deeply entrenched in our psyche. The images that have accompanied past episodes of market turmoil are largely absent today.

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Anatomy Of A Market Crash

When markets go sharply south, investors often act shocked and bewildered. Allusions to "perfect storms" and hundred-year floods parade through the financial headlines as if the market gods were acting on a vendetta. The only problem is these market swoons happen a lot more frequently than weather metaphors suggest: Hundred-year floods seem to appear every three to five years. Scorched investors may be perpetually surprised, but periodic crashes are as old as the markets themselves.

While market history tracks when these crashes happen, the trickier question is what causes them. External shocks--events like Sept. 11, or Hurricane Katrina--are a logical suspect. But it turns out external events are rarely the culprit for big market downdrafts. External factors are responsible for less than 20% of the stock market's biggest moves in the past 50 years.

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The Berkshire Hathaway Portfolio

In Berkshire Hathaway's (BRK.B) 2004 annual shareholder letter, chairman and CEO Warren Buffett wrote, "…be fearful when others are greedy, and greedy only when others are fearful," when explaining his investment philosophy. Now, as the stock market remains jittery as investors worry about the stability of the credit markets, an analysis of Berkshire's form 13-F indicates that the conglomerate has indeed been getting a little greedy as of late.

While managing Morningstar's Ultimate Stock-Picker's Portfolio, I routinely scan the holdings of Berkshire, which is essentially the stock picks of Warren Buffett and Lou Simpson, his colleague at auto insurer GEICO, for enticing ideas. As I've said many times, both have impressive investment track records, and I believe that investors can often find some attractive investment bargains by using the stocks in their portfolio as a starting point for research. To continue receiving my analysis of these ideas, please be sure to sign up for my free e-mail alerts if you haven't already done so.

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My Hero, Benjamin Grossbaum

Benjamin Graham was born Benjamin Grossbaum on May 9, 1894, in London, and sailed to New York with his family before he was two. He attended New York City public schools and excelled at every subject except gym. He read constantly and forgot nothing—the kind of child we wish we had, or, indeed, had been ourselves. With the untimely death of his father, young Benjamin early learned to do without and to work. He entered Columbia College at 17 in the Class of 1914 and majored in mathematics.

For Graham, the life of the mind was inseparable from the life of finance. He was a fluent and adventurous writer. At one time or another, he tried his hand at poetry, playwrighting, translations, textbook writing and—the highest form of literature—financial journalism. In 1915, the New York Times published a letter to the editor under his name. The subject was the city's sinking fund, for which Graham had no use. He was 20 years old at the time and was posting quotations by hand on the chalk board of the New York Stock Exchange member firm of Newberger, Henderson & Loeb. Graham wrote not only for money—which he could certainly use at that stage of his career—but also for glory, such glory, for example, as a signed piece in the Magazine of Wall Street might afford.

The modern journalistic convention calls for an author on an investment subject to sprinkle his article with validating quotations from acknowledged authorities—brokerage-house analysts, for instance. There was none of that in Graham's pieces. He himself was the authority, and his topics ranged from bankruptcies and arbitrage to orphaned value stocks. In the summer of 1924, on the eve of the great Coolidge bull market, he identified eight stocks that, seemingly for no good reason, were quoted in the market at less than their pro rata share of net current assets. Then there were eight—in less than a decade, there would be hundreds.

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Disclosure: Thanks to Sanjeev from MSN BRK shareholders board for the original reference.

The Future of Reading

"Technology," computer pioneer Alan Kay once said, "is anything that was invented after you were born." So it's not surprising, when making mental lists of the most whiz-bangy technological creations in our lives, that we may overlook an object that is superbly designed, wickedly functional, infinitely useful and beloved more passionately than any gadget in a Best Buy: the book. It is a more reliable storage device than a hard disk drive, and it sports a killer user interface. (No instruction manual or "For Dummies" guide needed.) And, it is instant-on and requires no batteries. Many people think it is so perfect an invention that it can't be improved upon, and react with indignation at any implication to the contrary.

"The book," says Jeff Bezos, 43, the CEO of Internet commerce giant Amazon.com, "just turns out to be an incredible device." Then he uncorks one of his trademark laughs.

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Interview with Jeremy Siegel, author of Stocks for the Long Run

The Wealthy Boomer column in this edition of FP Weekend highlights an interview I conducted last week with Jeremy Siegel, author of the bestselling book, Stocks for the Long Run. As the column notes, a new 4th edition is about to come out. This book has long been a favorite of the investment industry because it supports the case for investors buying their favorite asset class: stocks. (in the long run of course).

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Charlie Munger's Lollapalooza Effect and This Credit Fiasco

Charlie Munger, Warren Buffett's brilliant sidekick, has expounded many times on innate human biases and incentive effects. For anyone interested in this topic, I highly recommend you read the transcript of an amazing speech he delivered in 1995, called The Psychology of Human Misjudgement. I have read this speech at least a dozen times and each time I glean something new and valuable. At first it may seem somewhat rambling and confusing, but I think anyone who can get a grip on this material will have a leg up in life on the average Joe who has no idea about these important concepts.

Mr. Munger's treatise is clearly directed towards understanding how biases and incentive effects drive much of human behavior, and are not directed specifically at investing. However, the field of behavioral finance has grown to study many of these same concepts as they apply to financial decisions.

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Oak Value Interview: Meet the Managers

Learning to Invest David Meier: Tell us a little bit about yourselves, how you got interested in investing, and when you realized that value investing was the right thing for you?

David Carr: I was fortunate to meet one of my former partners in high school. His uncle had been a classmate of Warren Buffett's at Columbia and studied under Benjamin Graham. So early on, he took us under his tutelage and began to teach us a bit about value investing. Fortunately, our first exposure was to Buffett and to thinking about investing in that format.

In the early years, we began to wonder if there was a magic formula somewhere and how it worked. Our dream was to one day manage money and to put into play some of the beliefs and theories that we had learned. Over time, we began to do that and eventually realized there wasn't a magic formula and instead concentrated on business models and companies. The rest is history.

Part I

Part II

Part III

Part IV

Part V

Part VI

The Prince and His Palace: A 6,400-Square-Foot Getaway That Flies

He may be only the world’s 13th-richest man, but Prince Walid bin Talal of Saudi Arabia will soon be able to claim the bragging rights to the world’s largest private jet.

Putting an end to months of speculation, Airbus announced Monday that the Saudi billionaire had become the first V.I.P. customer for the A380 superjumbo jet, the winged colossus that the European plane maker prices at just over $300 million.

Prince Walid, who currently makes do with a customized Boeing 747-400, signed the contract for a new flying palace at a ceremony with senior Airbus executives at the Dubai air show.

He expects to take delivery in 2010.

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The Golden Haves

Lately, I have been trying to explain to my eleven-year-old son Gabriel the astronomical differences between people’s income.

Microsoft founder Bill Gates first penetrated Gabriel’s consciousness a couple of years ago, when his father served as a warm-up act to Gates at a large conference sponsored by the Danish government. Ever since, Gabriel has been fascinated by the seemingly infinite possibilities of having $60 billion.

For example, whenever I tell Gabriel that something is unbelievably valuable (even, say, a great painting in a museum), he invariably says, “But Bill Gates could buy it, right?” Yes, Gates could buy the whole museum. But then he would just turn around and give it back so everyone else can see it, so there is no point. Gabriel is not entirely convinced.

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Citigroup’s Next CEO

As regards who Citigroup’s next CEO should be, I was going to post one of our “Questions of the Week,” and ask what you think--but then decided that, this time, I want first crack. So here goes.
My first choice: Wells Fargo Chairman Dick Kovacevich. Dick is by just about all accounts the most effective, well-respected, banking executive in the business. He has a proven track record running a large, diversified organization--and he gets results. To put a number on it, Wells has earned more than 16% on its equity, on average, over the past 10 years. Over that period, the company’s earnings per share grew at an average annual rate of 14%. Dick even knows how to do deals and make them work. Plus, he should have no trouble attracting and retaining top talent, and can motivate individuals up and down the organization.

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Buffett could reap gains from credit turmoil: report

Warren Buffett, chairman of Berkshire Hathaway Inc., may cash in from the credit market turmoil and worries surrounding the financial strength of bond insurers, including Ambac Financial Group Inc. and MBIA Inc (MBI.N: Quote, Profile, Research), the Wall Street Journal said in its online edition on Monday.

With more than $45 billion in cash on its books, a triple-A credit rating and years of experience insuring other insurers against catastrophic losses, Berkshire Hathaway (BRKa.N: Quote, Profile, Research) is in a position to provide relief to some of these companies and could get into the bond-insurance business itself, the Journal said citing people familiar with the matter.

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How Long Should Gifts Just Grow?

AS nonprofit institutions have seen donations and investments grow spectacularly in recent years, the urge to keep the money rolling in is being supplemented by a new pressure: make it flow out faster.

Politicians, consultants, watchdog groups and even some philanthropists say that foundations, universities, museums and other charitable institutions often spend only what they must while their coffers expand, partly because of double-digit returns on investments. These “spend it sooner” proponents say that the minimum that private foundations are required to give — 5 percent of their assets each year — has in many cases become the maximum. To really attack social problems, they say, foundations and other nonprofits need to open their spigots much wider.

“There are certain dynamics that take over in terms of behavior, and one of those forces is usually the drive to perpetuate institutions,” said Warren E. Buffett, who is giving more than $30 billion to the Bill and Melinda Gates Foundation with the stipulation that it be spent promptly. “That dynamic — though undoubtedly subconscious — sometimes takes precedence over considering what might be best for society.”

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An Investment Framework

Investors should develop an investment framework which they make their decisions around. They should have tenets by which they abide in order to avoid permanent impairment of capital, while generating above average returns. Below are ideas from various others frameworks that are useful.

“Charlie (Munger) realizes that it is difficult to find something that is really good. So, if you say ‘No’ ninety percent of the time, you’re not missing much in the world.” – Otis Booth

Buy good businesses, which are easy to understand. Investors should look for businesses they would feel comfortable with if the markets were to close for ten years. One needs to understand how a business works and where the company’s earnings power is headed over the long-term. Good businesses generate their earnings in cash; have strong balance sheets, and few competitors. When analyzing a strong balance sheet, make sure to watch for liabilities not on the balance sheet as well.

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Prince Alwaleed: Why Chuck had to go

In the midst of staggering losses and intense public scrutiny, former Citigroup CEO Charles O. Prince III could always count on the support of the company's biggest individual shareholder: Prince Alwaleed bin Talal bin Abdul Aziz al Saud. Less than a month ago, the Saudi prince, who owns 3.6% of the company, even dismissed a sharp drop in earnings as a "mere hiccup."

But Fortune has learned that Prince Alwaleed and other major shareholders agreed last week that, if Chuck Prince didn't offer his resignation after the news of the additional $8 billion to $11 billion writedowns, they would publicly call for his ouster. In an exclusive interview, Prince Alwaleed, speaking by phone from the desert outside Riyadh, talked with Fortune's Andy Serwer and Barney Gimbel about the final days of Chuck Prince's tenure at Citigroup.

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Legg Mason Value Trust Releases Letter to Shareholders

On the 20th anniversary of the Crash of '87, the US stock market took a drubbing, falling 2.56%. In a curious parallel, the woes that are besetting the market are the result of a crash in the credit markets every bit as severe as that which hit equities back then, but which threatens to have more impact on the US and the global economy.

The stock market can close down for a while and it really doesn't matter all that much. The primary function of the stock market is not to finance company operations, it is to price assets. Companies go public once, and most come to the equity market for capital sporadically, and then typically to finance long-lived projects or acquisitions.

Link to the letter

Soros Forecasts 'Serious' US Economic Correction

Billionaire investor George Soros forecast on Monday that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending.

"We have borrowed an awful lot of money and now the bill is oming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails."

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Pimco's Gross: Subprime Crisis Is Far From Over

Credit markets face another $250 billion in defaults over the next two years, indicating that the worst of the subprime crisis is yet to come, the head of the world's biggest bond fund told CNBC on Monday.

"We've only begun to see the pain from the standpoint of the homeowner in terms of those monthly payments," said Bill Gross, chief investment officer of Pacific Investment Management or Pimco. "Defaults and delinquencies will increase as we extend throughout 2007 and into 2008."

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Transcript: Jeffrey Immelt of GE

Jeffrey Immelt, chairman and chief executive of General Electric, discussed the company’s prospects with Peter Marsh of the FT. The following is an edited version of the interview.

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Warren Buffett : Updates

Warren Buffett and NBC's Tom Brokaw: The Complete Interview

The Interview

Warren Buffett Sees "Fairly Significant" Chance U.S. Going Into Recession

The Interview

Warren Buffett on Value Investing, Repackaging Toads, Google and Investing in North Korea

The Interview

Bond Billionaire Backs Buffett

The Article

Warren Buffett and Jack Welch Live on Squawk Box.

The Transcript

The Video

Berkshire's Buffett says China is too hot to buy.

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Warren Buffett's Daily Reading List:

Buffett generally reads five newspapers a day -- the Journal, the Financial Times, the New York Times, USA Today and the Omaha World-Herald. Make that six -- he reads the American Banker every day too.

Warren Buffett to CNBC: U.S. Dollar Not the "Best Currency in the World" to Own Right Now.

The Transcript

Warren Buffett Calls Korean Stocks "Still Attractive" Despite Gains.

The Link

3 bargain stocks

"We are cowards." That's how Marty Whitman, the octogenarian dean of deep-value investors, describes himself and his colleagues at the firm he founded, Third Avenue Management.

Why? Simple, Whitman explains: "We hate to lose money."

Driven by that fear, Whitman and his crew focus on finding stocks that are "safe and cheap." Sit down and talk to him about his investing philosophy - as Fortune did recently at the firm's midtown Manhattan headquarters - and those two words come up regularly. And always in that order: safe, then cheap.

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Fox Interview With Buffett

In a broadcast exclusive with FOX Business Network’s Liz Claman, Warren Buffett talks about the housing market, selling his stake in PetroChina, the mystery currency he never announced until now and his own investments.

On taking stakes in home builders:

“I didn’t buy a share. I look at them. I look at their debt, their equities. I look at everything. I’m waiting until they’re under priced. That’s what I look for with any security. And, I don’t think they’re undervalued. Starting 30 minutes, ending 18 months ago – that year – we probably had more home builders offer to Berkshire where the managements wanted to see the business that I’ve ever seen in any industry. A significant percentage of the publicly-owned home builders, when their stock was flying high and their management was talking bullishly, were trying to sell their companies. Apparently they knew what was going on or likely to go on. Though, I don’t think they saw it coming as extensively as it did.”

On the Treasury’s bailout fund:

“Well, right now, it’s a mystery fund. When they announced it Monday they said more details would come. I haven’t seen any details so I don’t really know what they’re talking about. I don’t see anyway that pooling a bunch of mortgages, changing ownership is going to change the viability of the mortgage instrument itself. I’m withholding judgment on it and a little skeptical until I see the details.”

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Tiger's Robertson Sees 'Doozy of a Recession'

Hedge fund legend Julian Robertson said Friday he expects the U.S. economy is heading for a "doozy of a recession."

"I think we are going to have a doozy of a recession," Robertson told CNBC's Erin Burnett. "I think the credit situation is worse than anybody realizes, and...I think we're getting little inklings of that. I don't think any of the normal indicators you would look at in the economy are really very strong. As a matter of fact, they are weak, and not really getting any better."

Robertson, founder of the investment firm Tiger Management, also expressed some concerns about the devaluation of the dollar.

Watch the Interview

Professor Risk

In his office high above the Chicago River, Sam Zell, the real estate virtuoso and master investor, is talking about motorcycles. "I have had accidents over the years," he says, "but most of them while standing still. I'm actually a very very good driver." In case I look skeptical, he adds a sweetener, his wife's verdict: "Helen rides in the back with me and this is not Miss Bravery or something," he says. "But you know, she won't let me drive a car. I get distracted."

He's hoping I'll catch the broader point, which is about managing risk -- the subject we're actually here to talk about. In his three-plus decades in the business, Mr. Zell has built a fortune doing deals in industries and business cycles where few were keen to tread. He's come out with levels of success that left others wondering how they failed to see the opportunities that were there, plain as day.

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Is Your Brain Costing You Money?

In late September, Motley Fool Hidden Gems and Global Gains advisor Bill Mann sat down with renowned financial journalist Jason Zweig. Zweig's new financial book, Your Money and Your Brain, tackles the fascinating topic of neurofinance, the ways that your brain can trick you and cost you money.

The Interview - Part I

The Interview - Part II

Tom Plate and Jeffrey Cole interview Lee Kuan Yew

Singapore's first prime minister talks about China, the United States, and international politics as well as the future of media in Asian countries like Singapore and around the world.

This is the complete transcript of Minister Mentor (as the founder of modern singapore is now known) Lee Kuan Yew's interview with syndicated columnist Tom Plate of the UCLA Media Center and new-media expert Jeffrey Cole of the USC Annenberg School Center for the Digital Future. It took place on Sept. 27, 2007 in the minister's private office at Istana, Singapore.

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Buffett Avoids Bear Stearns, Countrywide Financial

Billionaire Warren Buffett said his Berkshire Hathaway Inc. won't buy a stake in Bear Stearns Cos. and that he ``never came close'' to acquiring shares of mortgage lender Countrywide Financial Corp., which fell 61 percent this year.

Buffett also said Berkshire sold all its stock in PetroChina Co., a company that has been the target of a divestment campaign by human rights groups.

Buffett denied a New York Times report published last month that said he might buy as much as 20 percent of New York-based Bear Stearns, the fifth-largest U.S. securities firm, during an interview on News Corp.'s Fox Business Network.

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Pabrai's Annual Meeting at Chicago Sept 2007

My friend, David had attended Pabrai's 2007 Annual Meeting and he has a nice summary on his blog.

Link to his blog

Interview with Warren Buffett

Last year you made your big announcement about giving away all your money. Is that decision sitting well with you or do you ever wake up in the night and think, "What have I done?"

No, I sleep like a baby. It's worked out perfectly for me. It's exactly what I wanted to do in terms of where the money goes, it's the people I want to have making the decisions, it fits well with what I want for Berkshire Hathaway, so I wouldn't change an item in it.

You gave the money to five foundations, the largest amount going to the Bill & Melinda Gates Foundation, but was there ever a Plan B? I heard you muse once that you could afford to hire 10,000 artists to paint your picture every day for the rest of your life. You were joking, of course, but was there ever something else you had in mind?

No. I originally thought that my wife would outlive me, she was younger than I was, and women live longer than men and all of that, so I thought that was likely, and in that case she actually would have made the decision. I mean, the money would have gone to what was then called the Buffett Foundation -- now called the Susan Buffett Foundation -- so she would really have been in charge of the disposition. But when she died first, I had to make the decision. She loved giving away money, and she was good at it, and she was wise about people, so I had no worries at all about how she would have carried it out, but instead I had to carry it out, so there was no Plan B once she died first.

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View from the Top: Richard Syron transcript

Chrystia Freeland, Financial Times US managing editor, interviewed Dick Syron of Freddie Mac, in this segment discussing the portfolio cap, jumbo mortgages and government regulation.

This is a transcript of the interview

Transcript: Interview with Carlos Slim

FT: And why don’t you get a bigger house?

MR SLIM: What for? So that you can get lost in it? No, in my house I live with my children. It’s a sociable space – one for sharing and meeting people in.
I don’t have any property outside Mexico. I don’t have a checking account, either. Nothing of that sort because it is just a hassle...

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Trading the Odds with Arbitrage

"I don't throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought." Many of you might recognize these words spoken by Gordon Gekko in the movie Wall Street. In the movie, Gekko makes a fortune as a pioneer of arbitrage . Unfortunately, such risk-free trading is not available to everyone; however, there are several other forms of arbitrage that can be used to enhance the odds of executing a successful trade. Here we look at the concept of arbitrage, how market makers utilize "true arbitrage," and, finally, how retail investors can take advantage of arbitrage opportunities.

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The Perils of Financial Historicism

Every financial crisis is inherently unknowable – before it occurs, and as it occurs. By contrast, we understand past crises very well. Accountants go over the books, the participants tell their tales to the newspapers (or sometimes before a judge), politicians explain why they are sorting out a mess, and in the end historians put together a story.

Because the past is knowable, the best way of understanding a current crisis is to search for a model in past experiences, even those that are long past. But which is the right template?

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Bubble Trouble

The future of the housing boom, and the possible financial repercussions of a substantial price decline in coming years, is a matter of mounting concern among governments around the world. I learned this first-hand while attending this year’s Jackson Hole Symposium in the remote wilderness of Wyoming, where, ironically, there are almost no homes to buy. The howls of coyotes and bugling of elk rang out at night. But, by day, everyone was talking about real estate.

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Warren Buffett: How He Does It

Did you know that a $10,000 investment in Berkshire Hathaway in 1965, the year Warren Buffett took control of it, would grow to be worth nearly $30 million by 2005? By comparison, $10,000 in the S&P 500 would have grown to only about $500,000. Whether you like him or not, Buffett's investment strategy is arguably the most successful ever. With a sustained compound return this high for this long, it's no wonder Buffett's legend has swelled to mythical proportions. But how the heck did he do it? In this article, we'll introduce you to some of the most important tenets of Buffett's investment philosophy.

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Interview with David Dreman

We're talking about bubbles and how to protect yourself as we land in these bubbles. David, one of them is in the subprime mortgage market which we're starting to see unfold now. You think it's got a lot longer to go. How much longer and how severe do you think it's going to get?

DAVID DREMAN: I think it has a fair amount to go because there's just a lot of mortgages that have to unwind. Sometimes it takes as much as three years to unwind. Unfortunately, sometimes some of the mortgages are like wines, you go buy the vintage. The 2005, 2006's are not good vintages.

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Kahneman: Master of the imperfect mind

Daniel Kahneman won a Nobel for explaining why people habitually make the wrong moves when investing or spending their money. Who better to tell you how to do it right?
It isn't often that a psychologist helps explain personal finance, but Daniel Kahneman isn't an ordinary psychologist. In 2002 he won a Nobel Prize in economics for his research into how people confront uncertainty.

Raised in France and Israel and formerly a professor at the Hebrew University of Jerusalem, UC-Berkeley and Princeton, Kahneman has spent half a century studying how the human mind works - or fails to.

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Disclosure: thanks to David for the original reference

Are we headed for an epic bear market?

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.

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Warren Buffett to CNBC: "I Don't Care" If the Fed Cuts Rates

Becky Quick: We have to ask you about the news of the day and the market. Everyone waiting to see what the Federal Reserve will do today. Do you think the Fed will cut 25 or 50 basis points today?

Warren Buffett: (Laughs strongly.) I represent a different view, maybe, than your other viewers. I don't think it makes any difference whatsoever to an investor in stocks what they do today. I don't care, I wouldn't care whether they raise the rate in terms of what I would do in stocks. If I knew exactly what they were going to do, I would not change a buy or a sell order that I have in.

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Less pain, more gain really

THE WISDOM OF ABEY

1. Money alone will not make you happy. Living an "authentic life" will. People have more money today than 50 years ago, yet are no more happy.

2. Have a financial plan for you, not your money. Those with a financial plan report greater satisfaction with life than those who do not.

3. Your plan should be based on your goals, not goals someone else says you should have. Those selling dreams are probably trying to sell you something else.

4. Understand "The Prize". Over the long term, cash makes a real return of 0%-1%, bonds 1%-3%, property (without leverage) 3%-5% and shares 5%-8%.

5. Understand the "enemy within". You are wired to make bad investment decisions, and your financial plan needs to defeat that.

6. Beware false accounting. An investment you bought for $100 five years ago, and sold for $150 yesterday, but cost you $4 to buy, $10 in finance interest costs, and $11 to maintain and insure, made a 25%, not a 50% return.

7. Drip-feed money into the markets so you do not worry about short-term ups and downs. You'll be buying in both.

8. Do not attempt to chase fads, or time the market. You will fail, unless you are lucky. Very few people are consistently lucky.

9. Do not watch your investments constantly. Review annually.

10. Have a financial planner. Make sure he or she is not a commission salesman.

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Research on Buffett’s riches

Wafers fell in love with a man old enough to be her grandfather. The immediate provocation: he, the world’s third richest man, had willed that 70 per cent of his estate would go to the Gates Foundation and not to his blood relatives.

There was just no parallel that she could think of. Warren Buffett was her man for all seasons.

She decided to research Buffett. And what she found made her rush to China. “Hey did you know?” she asked. In her excitement she didn’t realise that he wouldn’t know that she was asking about Warren Buffett. “Know what?” asked an incredulous China. “Well, that Warren Buffett is only 76 and that he has a net-worth of $52 billion”.

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Eggheads made to eat their words by Warren Buffett

WARREN BUFFETT had it all wrong, Mark Carhart told a packed New York conference last summer.

The fortysomething from Goldman Sachs cited study after study showing big-name companies with high price-earning multiples or rapid growth rates make poor investments.

Traditional stock pickers, including Buffett, a fabled raconteur, may “tell great stories,” said Carhart, but betting on big names like Coca-Cola and Gillette was so old-fashioned and obviously no match for Carhart and his complex box of tricks.

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VFTT transcript: Neville Isdell of Coca Cola

Chrystia Freeland, Financial Times US managing editor, interviewed Neville Isdell of Coca Cola. In this segment discussing his board, acquisitions and corporate social responsibility. This is a transcript of the interview.

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Valuing Cyclicals Like the Pros

Valuing companies can be frustrating, even with high-quality businesses. If those firms are also cyclical, such as Motley Fool Inside Value recommendation USG (NYSE: USG) or Motley Fool Hidden Gems pick MDC (NYSE: MDC), they can pose significant challenges to analysts attempting to value their shares. To get a better grasp on the challenge of valuing USG, I recently spoke with Peter Supino, the Weitz Funds analyst responsible for the firm's 3% stake in the building materials manufacturer.

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Reinsurance Emerges as Lower Cost Alternative to Risk Financing as Credit Markets Become More Expensive: Aon Re Global Analysis

As the property catastrophe reinsurance market moves further away from the 2005 Atlantic Hurricane Season -- the most significant recent catastrophic event to impact the industry -- trends indicate that renewal pricing peaked in July 2006, and that the reinsurance margin per unit of risk reinsured is in decline. That decline comes as the cost of equity and debt capital will be increasing for insurance; as such, the reinsurance pricing and terms cycle can be uncorrelated with the cost of equity and debt capital for insurers and reinsurers.

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Swiss Re sees industry claims for natural catastrophes increasing

Swiss Re said it estimates that in 2007 claims for the industry from natural catastrophes will amount to roughly 35 bln usd, well above a benign 2006 which saw claims of 12 bln usd.

The higher claims scenario for 2007 underlines the long-term trend towards higher natural catastrophe claims.

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A V Rajwade: When risk becomes uncertainty - III

Some instruments are so complex that it can take investment banks' computers entire weekends to value them!

Even as a measure of calm has returned to the financial markets, cautions are being sounded. The president of the Bundesbank described the events as “a classic bank run” — but on a different class of financial intermediaries like hedge funds, conduits, SIVs and SIV-lites. In the US, the number of foreclosures in the current year is expected to go up to 2 million, up from 1.2 million last year. This means that one of every sixty house-owners will be thrown out of his/her house, a rate not seen since the Great Depression of the 1930s. And, this is not the end: as many as 2.5 million adjustable rate mortgages (ARMs), where the initial rate was kept low to attract the borrower, are due for re-pricing next year. Quite often, a fall in home prices has been followed by recession. Could we see history repeating itself this year? There are some signs: US car sales in August showed a fall.

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How You Perform in Bear Markets is what counts

By definition, a true value investor is primarily focused on the weathering the bear market storms and coming out relatively unscathed. In times of market advance, a lot of people get mistaken for investment geniuses when in fact it's the rising tide that's moving them up in the world.

Bear markets on the other hand, expose the intelligent investor from the fly by night speculator. My approach and the ultimate purpose of value investing is outperforming bear markets.

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Tweedy, Browne's Secrets of Value Investing

Tweedy, Browne is money management's equivalent of the Republican cloth coat: nothing flashy, ever dependable, transcending style. It is an organization that was founded in 1920 to deal in thinly traded stocks, and which in the 1950s realized that more money was to be made in owning such typically undervalued shares than in trading them. The firm began to take in outside funds in 1968 and has grown to manage more than $13 billion today.

I asked him how his firm practices value investing today. He says Tweedy, Browne eschews a top-down approach and instead looks for companies that would meet an updated version of Benjamin Graham's requirements.

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Brand, growth, management, liquidity, value - the Buffett test

Celebrity weddings can be million-dollar affairs these days, but when renowned investor Warren Buffett married last year, he did so in a small ceremony involving only himself, his new bride, and two guests, according to The New York Times. The wedding was followed not by a privately catered feast, but instead by dinner for the quartet at Bonefish Grill, a seafood restaurant chain where you can get a center-cut filet mignon for less than $20.

Buffett's lifestyle may not brim with the glamour and excitement you'd expect of one of the world's wealthiest men -- his primary residence remains the gray stucco Nebraska home he purchased for $31,500 nearly 50 years ago, according to Forbes -- but his resume and investment portfolio are enough to make anyone's heart skip a beat. Five decades after starting his first job, Buffett has amassed a $44 billion fortune through his stock market expertise. His firm, Berkshire Hathaway, a holding company that owns such corporate giants as Geico and Fruit of the Loom and has sizable stakes in the likes of Coca-Cola, Wells Fargo, and American Express, averaged a 24 percent annual return over a 32-year period, one of the greatest stock market runs ever.

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Buffett And Lynch On Rails

As the market has headed downward over the past month or two, there's been speculation that the climate might be right for the great Warren Buffett to go on a bit of a buying spree.

After all, Buffett said earlier this year that his company Berkshire Hathaway is looking to make a $40 billion to $60 billion investment sometime soon, and the recent price drops could signal a chance for the investing world's greatest bargain-hunter to spring into action.

Buffett has been mum on whether he has something huge in the works, but one move Berkshire has made recently involved upping its stake in rail operator Burlington Northern Santa Fe. Berkshire bought 845,000 shares of the railroad last week, meaning it now owns about 15% of Burlington. And that's not the only railroad operator that Buffett has been bullish on. Earlier this year, Berkshire disclosed that it also has sizable investments in both Union Pacific and Norfolk Southern.

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Man Tries to Break Into Buffett's Home

A man with camouflage paint on his face and a fake gun tried to break into to billionaire Warren Buffett's house but fled after a scuffle with a security guard, police said Thursday.

Buffett's wife, Astrid, summoned the guard after the doorbell rang shortly after 10 p.m. Wednesday, police said.

The security guard found the man, dressed all in black, on the home's front porch and confronted him, police said. The man struck the guard on the head, then fled and remained at large Thursday.

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Minding Your Money

Why do smart people make stupid financial choices—and how can they avoid repeating them? Having a head for investing, it turns out, isn't about doing arithmetic on napkins or studying spreadsheets. In fact, a key requirement is modesty and self-awareness, says Money magazine senior writer Jason Zweig, author of “Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich” (Simon & Schuster. $26). Zweig endured a series of MRIs to see for himself how the brain responds to financial challenges, and he culled insight from the growing field of neuroeconomics, which studies the biochemistry of our financial behavior. NEWSWEEK's Temma Ehrenfeld spoke to the author about the perils of our brain-triggered responses, how avid investors are like drug addicts and why women really are better investors. Excerpts:

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Compounding: a snowball rolling down a remarkable slope...

Probably there isn't any other subject in the (financial) world that gets that little attention, and is that important at the same time... as compounding. Albert Einstein (1879-1955) called it the 'Eighth Wonder of the World'. Warren Buffett has been said to agree with him. And probably you should too!

Compounding is one of the most powerful principles in our universe. Almost everything you see around you is the result of a compounding process.

The human brain is programmed in a linear way. We are too much focused on the short run, on annual or even quarterly returns. Most of us are underestimating the effects our short term focus will have over time.

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Million-Dollar Man March

Humor~~

Demanding further intervention from the Federal Reserve to protect their endangered fortunes, thousands of the nation’s leading hedge-fund managers marched on Washington today.

Dubbed “The Million Mercedes March,” the protest was said to be the largest chauffeur-driven demonstration in the capital’s history.

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Subprime Risks: Overblown

The market has gone haywire. As I write, the Dow Jones industrial average has experienced 14 triple-digit fits and starts since July 20. Subprime fears have made financial stocks even more volatile. This pinball effect is leaving many investors feeling skittish about where to put their money. During tough times like these I stay focused on the areas I know best, which keeps me calm and confident in my decisions.

This way I can concentrate on what matters most: underlying business fundamentals. And I don't waste time worrying about things I can't control or predict, like what sectors will be in vogue next or where interest rates are going.

Warren Buffett and Charles Munger have dubbed this kind of industry-specific expertise a "circle of competence." The circle's size doesn't matter as much as recognizing its boundaries. When times get tough, fear leads people to overdiversify their investments in hopes of minimizing losses. Bad idea.

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Jostling in the Skies for the Business Jet Set

THE business jet industry, surging as airline delays keep pushing new passengers into more expensive private jet flying, is undergoing some basic competitive readjustments.

One is a move that will be announced today by NetJets, the company that 20 years ago introduced the concept of selling fractional shares of private jets and managing them for clients.

NetJets will eliminate much-disliked “ferry fees” — charges for flying and repositioning an empty airplane to or from a client’s destination — for many flights between the continental United States and major foreign destinations. NetJets, which has a worldwide fleet of 694 business jets, does not now charge ferry fees within the continental United States.

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The Origin of Money and its Value

The Austrian school has offered the most comprehensive explanation of the historical origin of money. Everyone recognizes the benefits of a universally accepted medium of exchange. But how could such a money come into existence? After all, self-interested individuals would be very reluctant to surrender real goods and services in exchange for intrinsically worthless pieces of paper or even relatively useless metal discs. It's true, once everyone else accepts money in exchange, then any individual is also willing to do so. But how could human beings reach such a position in the first place?

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Emotion Can Make You a Bad Investor

Investors often make choices that make no logical sense but perfect emotional sense, argues financial journalist Jason Zweig in his new book, Your Money & Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich. He spoke with reporter Emily Brandon about how to overcome your brain's natural urges to become a better investor.

When investors experience a monetary loss or gain, what kind of physical effect does it have on the body?

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Source: David

Sub-Prime Economic Theory

The possibility that the European Central Bank may raise interest rates in the midst of a financial crisis recalls the great American orator William Jennings Bryan’s famous “cross of gold” speech in 1896. Referring to the international gold standard’s deflationary bias, Bryan railed: “You shall not press down upon the brow of labor a crown of thorns. You shall not crucify mankind upon a cross of gold.”

In other words, ordinary people should not be made to suffer for the foibles of policymakers enthralled by some defunct economic theory.

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Take-Home Lessons on Value Investing

Do you want greater investment returns? You need to assume more risk. So says academic finance, which rests almost entirely on the principle that reward necessarily entails and is commensurate with risk. Indeed this assumption has at least an element of truth to it, inasmuch as stocks are riskier than bonds, and also tend to deliver greater returns than bonds over longer (say, multiyear) periods of time.

Hedge fund manager and author of "The Dhandho Investor," Mohnish Pabrai, begs to differ with the academics. Like so many value investors who've come before him (and to whom he's duly deferential), Pabrai provides a framework for selecting unloved, overlooked, forgotten, and seemingly boring businesses that are selling at cheap enough prices to minimize risk and maximize returns.

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Passion for Business vs. Passion for the Business

"It's a little strange -- I'm going from hip hop to kosher food," says Ruby Azrak, the sole investor behind Hot Nosh 24/6, a new line of kosher vending machines that sell onion rings, pizza, potato knishes, vegetable cutlets and mozzarella sticks. Within two years, Azrak hopes to have 2,000 machines installed in airports, hospitals, colleges and yeshivas nationwide.

Azrak has a talent for starting and investing in all sorts of businesses, which was quite apparent as I recently waited for him in his Manhattan office, surrounded by piles of rhinestone-studded sweatshirts from House of Dereon, singer Beyonce and her mom's clothing line, which he also runs.

While Azrak certainly wears the role of entrepreneur well, it's clear that his passion is for starting a business itself, not necessarily a specific type of business. Does this distinction play any role in a small-business owner's success?

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Bear Bonanza

As boom turned to gloom, some gamblers with good timing made a fortune. Will they also know when to take their bets off?

Earlier this year Prem Watsa, the gunslinging chief of Fairfax Financial (nyse: FFH - news - people ), had $341 million riding on a hunch that dozens of brokers, banks and insurers could struggle paying their debts. Watsa has a history of making a killing on bearish bets. He sold half the company's stock holdings before the 1987 crash and bought puts against the S&P 500 before the index fell in 2000. But as summer began, his latest wager had produced nothing but losses.

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Giving it 361,156%

Berkshire’s dream is to replicate the success of 2002 when, after the Enron and WorldCom scandals, Buffett jumped into junk bonds, snapping up more than $7bn worth of energy and telecom assets. Many observers thought he had taken leave of his senses; but he was soon to prove them spectacularly wrong.

By the end of 2003, he had pocketed $1.1bn profit on his junk bonds alone. The idea this time around is that he will load up on prime mortgage-backed securities, whose value has been hit by their dodgy sub-prime variants, as well as cheap bonds being offloaded by desperate investment banks.
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Source: Thanks to Sanjeev from MSN BRK board