Today, let's play a little game of "Spot the Different Worldviews."
One comes from Warren Buffett, the world's second-richest man, universally known for his long-term approach to investing. The other is a farewell letter from a hedge fund manager who made a smaller fortune betting against the worst culprits in the subprime crisis.
By now you know that Buffett is considering going all-in on American stocks. He says now's the time for getting out of the terrible long-term returns all that cash on the sidelines will bring. A quick excerpt:
I've been buying American stocks. This is my personal account I'm talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation's many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Meanwhile, hedge funder Andrew Lahde, made famous for last year's massive bet against subprime lenders and its 1,000 percent return for his fund, is bowing out of the game completely. Counterparty risk is too hot, he says, and he sees nothing exciting about the future for stocks or America.
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, "What I have learned about the hedge fund business is that I hate it." I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America....
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life—where I had to compete for spaces in universities and graduate schools, jobs and assets under management—with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
He goes on to call for the establishment of a new form of government, and, I kid you not, extols the virtues of hemp. Let's see that coming out of one of the annual reports from Omaha!