Warren Buffett released his annual letter to shareholders today, which talks about Berkshire Hathaway’s 2007 results. In case you’ve never read one his his annual letters before, I encourage you to check out a few of them this weekend. He has a knack for making things clear and easy to understand, and he’s right a lot more often than he’s wrong.
I’m reading through his latest letter now, and here’s an example of what you’ll find in it: “You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.
I’ll probably have more comments and observations later – but I gotta read the whole thing first.
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