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Guebert: Politics interfere with value investments

In a recent television interview, famed Wall Street investor Warren Buffett characterized the October federal government shutdown as “totally irresponsible” and said the failure of leaders in the U.S. House of Representatives to raise the nation’s debt ceiling until moments before possible default was “just plain stupid.”

Unlike most stock market billionaires, Buffett wasn’t talking “his position”; the tough opinions were tied to his patriotism, not his investments.

“The debt ceiling is a political weapon of mass destruction,” he told TV interviewer Charlie Rose, “it shouldn’t exist. It’s nuts. It’s like nuclear weapons; it can’t be used, and both (political) parties should say, ‘It’s off the table,’” in future budget talks — including current talks between House and Senate negotiators.

And the national debt, asked Rose, isn’t it a national calamity?

Today’s net national debt, explained the Oracle of Omaha, is about 70 per cent of gross domestic product. Just after the Second World War, he noted, it was “something like 120 per cent,” so we can “handle the debt relative to our current output” today.

The problem, Buffett continued, “isn’t that the country has become poorer. It’s, in fact, become richer. A lot richer. The problem is that we’ve overpromised in some cases and are unwilling to raise the revenue (to pay) for some of the promises we’ve made.”

A balance between the two — the need to trim some of the promises and increase some revenues — is the best, fairest way to secure the future, he suggested.

Buffett, of course, is famous for becoming one of the richest people in the history of the world through “value investing,” buying securities of firms he believes are fundamentally undervalued in the market.

According to a recent Wall Street Journal analysis, Buffett’s company, Berkshire Hathaway, invested $25.2 billion in six firms after the 2008 stock market collapse (Swiss Re, Goldman Sachs, Dow Chemical, General Electric, Bank of America and Mars/Wrigley). To date the total return on these six investments stands at $9.95 billion, or 40 per cent.

This market and this Congress do not seem to get his fundamental message: bypass short-term fads and invest in long-term value.

For proof, look at the companies Wall Street has fallen madly in love with lately. Social networking Facebook has a market value of $122 billion, projected earnings of 0.18 cents per share and, as such, a share price 218 times more than earnings.

Twitter, the newest social network, is about to “go public,” and sell shares in the company. If the offering goes as expected, Twitter will raise $11 billion even though the firm has no profit whatsoever.

Meanwhile, Apple, a company that actually makes something, saw its stock price slapped 13 per cent lower Oct. 29, the day after it reported a nine per cent drop in quarterly earnings. Apple did make money, a net profit of $7.5 billion in just three months. And it has $147 billion in the bank, in cash, right now.

The short-termers in Congress are little different than the stock jockeys of Wall Street. They chase after fads, fashion and public opinion with little thought to long-term value or long-term impact.

And, in the process, they’ve short sold America and, especially, American farmers and ranchers who have been waiting two years for a timely, updated Farm Bill. That’s totally irresponsible.

In fact, it’s just plain stupid.

(The Farm and Food File is published weekly in more than 70 newspapers in North America. Contact Alan Guebert at[email protected])

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