Warren Buffet: The Smartest Idiot I Know

James Altucher MarketWatch May 2, 2011

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Outside the Box

May 2, 2011, 1:45 p.m. EDT

By James Altucher

NEW YORK (MarketWatch) "” Here's what I hate about stocks. Everyone thinks they're a genius. Until they aren't. Then you never hear from them again because they've usually killed themselves. And Warren Buffett takes the brunt of all of their arrogance. And Buffett is usually the reason for the noose they put around their neck.

First, Buffett was an idiot in 1999. Wasn't he? I mean, everyone on TV said he was. Heck, I even thought he was. I was going to write him an email back then. Shouldn't you be looking at "relative" P/E ratios instead of absolute? It was almost as if I knew something back then. I'm amazed thinking back to that moment that I could write Warren Buffett an email and he would call me and say, "James, I'd like to invite you to my three-bedroom house in Omaha that I bought for almost nothing in 1955 and we can share a bag of potato chips and you can tell me all of your theories of investing." Read 8 Unusual Things I Learned from Buffett.

But I never wrote the email. Because I was too good for Warren Buffett. And the entire time I was losing a million dollars a week in the summer of 2000 Read What It Feels Like to be Rich. I was also too good for him. Or maybe then I was ashamed. It was so long ago I forget.

WSJ's Shira Ovide reports from Berkshire Hathaway's shareholder meeting.

So then Buffett was a genius again. Berkshire Hathaway /quotes/comstock/13*!brk.b/quotes/nls/brk.b BRK.B -1.95% /quotes/comstock/13*!brk.a/quotes/nls/brk.a BRK.A -1.74% zoomed. We all loved him. And you know what? I even wrote a worst-selling book about him, "Trade Like Warren Buffett." I read every letter he wrote. Not just the Berkshire Hathaway letters, which are probably scanned by every lawyer in existence, but his hedge fund letters from 1957 on. And I wrote how he was a much more active trader than anyone thought and not really a value investor. But nobody bought the book. I don't even care anymore. Don't buy the book. I reread it recently. It's no good. I wouldn't even give a copy to my kids in my recently written will.

And now he's an idiot again, apparently. His No. 2 guy, or maybe its his No. 3 or No. 4, we never really know "” anyway, his No. 2 guy bought some shares of a stock /quotes/comstock/13*!lz/quotes/nls/lz LZ +0.10% and then convinced Warren to buy the company. Or, that's the cynical view. David Sokol is innocent. I have his book, "Pleased But Not Satisfied," on my bookshelf. And if it wasn't for the fact that I have an 800-word limit on this column I'd explain in detail why Sokol is innocent of all legal and moral crimes that talking heads on TV are accusing him of.

/quotes/comstock/13*!brk.a/quotes/nls/brk.a BRK.A 122,585, -2,165, -1.74%

I've done a lot of very dumb things in my life. And occasionally my wife thinks I'm not very smart even now. But one thing I know is when people on TV are saying "Maybe Warren Buffett has finally lost his touch," it's time to reach into my wallet, leverage up a few of my homes, sell my yachts, and start buying some stocks.

What stocks should I buy? Well, the exact stocks Warren Buffett is buying.

Let's start with American Express /quotes/comstock/13*!axp/quotes/nls/axp AXP +1.20% . He bought 150 million shares of that last quarter. Nobody knows AmEx better than Buffett. He probably had his greatest percentage increase in net worth buying AmEx shares in 1962 when they had the great "salad oil" scandal and he loaded up right when everyone else thought they were going bankrupt. He made his biggest killing ever over the next two years after that. So he's buying again.

He bought 6 million shares of Wells Fargo /quotes/comstock/13*!wfc/quotes/nls/wfc WFC -0.07% . He skipped all the "too big to fail" guys: Citigroup /quotes/comstock/13*!c/quotes/nls/c C -1.74% , Bank of America /quotes/comstock/13*!bac/quotes/nls/bac BAC +0.81% (actually, he sold all his shares), and J.P. Morgan Chase /quotes/comstock/13*!jpm/quotes/nls/jpm JPM -0.85% . Wells is one of the only banks that actually tried to refuse the bailout money, but Hank Paulson forced them at gunpoint to take it.

He's owned Washington Post Co. /quotes/comstock/13*!wpo WPO +0.79% since the early 1970s, so many people might think that one's old news. But it isn't. The company should really be called "The Stanley Kaplan Educational Testing Service Co." because that's where all of their profits come from. At less than four times cash flows, Washington Post Co. will get bought out any day now by my calculations, particularly with the non-stop competition to get into the best over-inflated colleges. Read my article, Don Graham is a Punk.

Next, he's safely parked in a few stocks that will benefit for the next 30 years from the aging baby-boomer demographic. He owns $130 million worth of Sanofi Aventis /quotes/comstock/13*!sny/quotes/nls/sny SNY +1.16% and $60 million worth of GlaxoSmithKline /quotes/comstock/13*!gsk/quotes/nls/gsk GSK +0.28% , two of the largest drug makers and pharmaceutical companies in the world. People get older, they get sicker, they need drugs, they buy them from these two companies, both of which trade for less than 10 times earnings and both of which have dividends they continuously raise year after year.

I never bet against a guy who has consistently made money for about 60 years in a row and has survived every crisis thrown at him. I probably know more about his record than anyone else on the planet. Who am I going to listen to: a random guy at a cocktail party, or Warren Buffett? But I still want to find out why the Stanley Kaplan guys rejected me when I applied to be a teacher for their little SAT course.

James Altucher manages Formula Capital, an alternative asset management firm. He has written six books on investing, the latest of which is: "How to Be the Luckiest Person Alive!"

/quotes/comstock/13*!brk.b/quotes/nls/brk.b Add BRK.B to portfolio BRK.B Berkshire Hathaway Inc $ 81.68 -1.62 -1.95% Volume: 2.99M May 2, 2011 2:22p var embeddedchart1810767243Chart = new EmbeddedChart('#embeddedchart1810767243', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:BRK.B'); jQuery.data($('#embeddedchart1810767243').get(0), 'embeddedchart', embeddedchart1810767243Chart); /quotes/comstock/13*!brk.a/quotes/nls/brk.a Add BRK.A to portfolio BRK.A Berkshire Hathaway Inc $ 122,585 -2,165 -1.74% Volume: 344.00 May 2, 2011 2:22p var embeddedchart1810767242Chart = new EmbeddedChart('#embeddedchart1810767242', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:BRK.A'); jQuery.data($('#embeddedchart1810767242').get(0), 'embeddedchart', embeddedchart1810767242Chart); /quotes/comstock/13*!lz/quotes/nls/lz Add LZ to portfolio LZ Lubrizol Corp (The) $ 134.66 +0.14 +0.10% Volume: 512,275 May 2, 2011 2:20p var embeddedchart1399981948Chart = new EmbeddedChart('#embeddedchart1399981948', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:LZ'); jQuery.data($('#embeddedchart1399981948').get(0), 'embeddedchart', embeddedchart1399981948Chart); /quotes/comstock/13*!axp/quotes/nls/axp Add AXP to portfolio AXP American Express Co $ 49.67 +0.59 +1.20% Volume: 5.31M May 2, 2011 2:22p var embeddedchart231498235Chart = new EmbeddedChart('#embeddedchart231498235', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:AXP'); jQuery.data($('#embeddedchart231498235').get(0), 'embeddedchart', embeddedchart231498235Chart); /quotes/comstock/13*!wfc/quotes/nls/wfc Add WFC to portfolio WFC Wells Fargo & Co $ 29.09 -0.02 -0.07% Volume: 20.37M May 2, 2011 2:22p var embeddedchart1999992832Chart = new EmbeddedChart('#embeddedchart1999992832', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:WFC'); jQuery.data($('#embeddedchart1999992832').get(0), 'embeddedchart', embeddedchart1999992832Chart); /quotes/comstock/13*!c/quotes/nls/c Add C to portfolio C Citigroup Inc $ 4.51 -0.08 -1.74% Volume: 197.08M May 2, 2011 2:22p var embeddedchart372029407Chart = new EmbeddedChart('#embeddedchart372029407', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:C'); jQuery.data($('#embeddedchart372029407').get(0), 'embeddedchart', embeddedchart372029407Chart); /quotes/comstock/13*!bac/quotes/nls/bac Add BAC to portfolio BAC Bank of America Corp $ 12.38 +0.10 +0.81% Volume: 58.95M May 2, 2011 2:22p var embeddedchart728891016Chart = new EmbeddedChart('#embeddedchart728891016', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:BAC'); jQuery.data($('#embeddedchart728891016').get(0), 'embeddedchart', embeddedchart728891016Chart); /quotes/comstock/13*!jpm/quotes/nls/jpm Add JPM to portfolio JPM JPMorgan Chase & Co $ 45.24 -0.39 -0.85% Volume: 15.01M May 2, 2011 2:22p var embeddedchart124732459Chart = new EmbeddedChart('#embeddedchart124732459', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:JPM'); jQuery.data($('#embeddedchart124732459').get(0), 'embeddedchart', embeddedchart124732459Chart); /quotes/comstock/13*!wpo Add WPO to portfolio WPO Washington Post Co (The) $ 439.36 +3.46 +0.79% Volume: 7,066 May 2, 2011 2:05p var embeddedchart124732710Chart = new EmbeddedChart('#embeddedchart124732710', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:WPO'); jQuery.data($('#embeddedchart124732710').get(0), 'embeddedchart', embeddedchart124732710Chart); /quotes/comstock/13*!sny/quotes/nls/sny Add SNY to portfolio SNY Sanofi Aventis SA $ 39.98 +0.46 +1.16% Volume: 1.57M May 2, 2011 2:22p var embeddedchart1643762598Chart = new EmbeddedChart('#embeddedchart1643762598', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:SNY'); jQuery.data($('#embeddedchart1643762598').get(0), 'embeddedchart', embeddedchart1643762598Chart); /quotes/comstock/13*!gsk/quotes/nls/gsk Add GSK to portfolio GSK GlaxoSmithKline PLC $ 43.78 +0.12 +0.28% Volume: 1.11M May 2, 2011 2:22p var embeddedchart1690816119Chart = new EmbeddedChart('#embeddedchart1690816119', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:GSK'); jQuery.data($('#embeddedchart1690816119').get(0), 'embeddedchart', embeddedchart1690816119Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});

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What stocks should I buy? Well, the exact stocks Warren Buffett is buying.

James Altucher manages Formula Capital, an alternative asset management firm. He has written six books on investing, the latest of which is: "How to Be the Luckiest Person Alive!"

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Warren Buffet: The Smartest Idiot I Know

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