Buffettology 001

I'm going to start by including snippets of what we can learn from Warren Buffett or what is currently swirling in his mind.

• It has been a month since B has emerged as a significant investor in both Goldman Sachs and GE - iconic names in the US business world.
• B's investment policy has always been to invest in specific businesses, not on the direction of the market.
• The deals that he has struck are on characteristically preferential terms (that say little about the prospects for other equity investors).
• He has a 10% coupon on a preference share, with an option to buy additional shares at a discount to the current share price (as long as his picks don't go bust).
• His unqualified success was Gillette and Salomon Brothers (1991).

In lobbying for the Paulson plan through Congress, B has made it clear that he regards the current crisis as America's "Financial Pearl Harbour", potentially the harbinger of the worst economic downturn since the 1930s.

His instinct is that the recession will be longer and deeper than most commentators think, and that meltdown in the financial system remains a real risk.

While a number of individual shares now look strikingly cheap and are likely to yield handsome returns over time, it is far from clear that the market has fully discounted the damage to corporate earnings to come.

Jonathan Davis - Independent Investor.