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David Weidner's Writing on the Wall

Jan. 5, 2010, 12:01 a.m. EST · Recommend (12) · Post:

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The bank that couldn't shoot straight

First Take "º

Buffett slams the brakes on Kraft

By David Weidner, MarketWatch

NEW YORK (MarketWatch) -- Regular readers of this column know that it rarely, if ever, dispenses investment advice. That's a big reason why it's still around after all these years.

There is, however, a difference between investment advice and investing principles.

After hanging around Wall Street for so long, I've learned a few investing principles that stand the test of time. They're just as true in bear markets as they are in bull markets.

Some are maxims you hear every quarter from your broker. Some aren't talked about very much. Maybe it's because Wall Street wants us to believe the markets are something they're not.

This brings us to our first investing principle:

The markets are little more than legitimized casinos. They aren't safe. If investors really wanted safety, they would invest in FDIC-insured savings accounts, certificates of deposit or municipal bonds.

Sure, many of those "safe" investments carry risk, but they are the modern-day equivalent of mattress-stuffing compared to investing in stocks, bonds, commodities, mutual funds, exchange-traded funds and all of their derivatives.

Some people will tell you that you can hedge these bets. You can invest in options or futures or take short positions. But insuring trades has never made sense to me. If you have to spend money to hedge a bet, it probably means you can't afford to invest the money.

Most of us who invest in the stock market are well aware of the risk. We take that risk because we want to beat inflation or the anemic returns of some of the aforementioned safer investments. Wall Street makes investing sound complicated, but it really comes down to our second principle:

When the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,535, -48.67, -0.46%) soared above 14,000 and the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,132, -0.58, -0.05%) climbed to 1,500, they did so because investors got greedy.

Through the middle of the last decade, real gross-domestic-product growth was around 3%. Yet, in just a span of seven years, the Dow rose 40%. It was speculative greed. Investors didn't want to miss the easy money. It was 1928 all over again.

Reuters Warren Buffett

So, what happened to cause the collapse? A massive decline in industrial output? Of course not.

When the first few subprime loans began to go sour, everyone rushed to the exits. It wasn't just fear -- it was panic. The market sold off 50%.

You forgot to mention:The "market" is completely fraudulent with rampant insider trading making the bulk of the money and extracting it from your 401k. Probably one-third of this fraud would be gone if we burned GS to the ground.Folks, it is time to run the crooks out of town and return some fairness to the markets."

- breath999 | 1:26 a.m. Today1:26 a.m. Jan. 5, 2010

Kraft CEO Irene Rosenfeld gets an earful, being told that her costly pursuit of Cadbury amounts to biting off more than her company can chew -- by none other than Warren Buffett.

57 min ago1:46 p.m. Jan. 5, 2010

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