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Archive for the ‘risk management’ Category

682din_buffet

Reinsurance Guru links to an article at the Motley Fool, concluding, in the quote, with this sentence:

So is it time to conclude that Buffett’s investing legend has been nothing more than extreme luck and excessive risk-taking — the ultimate bubble waiting to pop?

I don’t understand why RG picked out only the really nasty setup of the article and totally missed the knockdown. For instance, the conclusion from Motley Fool:

There is plenty of risk in Berkshire shares, but at current prices, I believe that Berkshire Hathaway is worth the risk.

One thing that the Motley Fool article does alight on is something that I mentioned in an earlier post, namely that the risk in BRK isn’t the stock investments (can only go to zero in the worst case scenario) and it isn’t the prospect of a debt default (see here for an interesting discussion on why CDS spreads can expand). It’s the reinsurance risk.

And reinsurance risk is extremely poorly disclosed to investors, which continues to baffle me. We don’t have an idea for RDS values or what risk management steps Buffett undertakes (which would give us a clue as to what kind of risks really lurk in this smorgasbord).

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