Warren Buffett Speaks His Mind in Burden Auditorium
Adriana Boden (NI), Co-News and Campus Affairs Editor
Issue date: 4/28/03 Section: News
Buffett, who claims he has never borrowed more than twenty-five percent of his net worth and even then only a few times early on in his investing career, is known for aggressively pursuing low-risk and long-term investment opportunities. Berkshire Hathaway enjoys an investment credit rating of no lower than AAA and a stock price which at last count rested at $71,950 a share. His low-risk investment strategy is, among other things, driven by the fact that his aunt, mother and several family members are all invested in his firm. Quite simply, Buffett states, "I would never want to put them in any sort of jeopardy." Buffett himself keeps over ninety-nine percent of his net worth in Berkshire and vows that he has never sold and never will sell his shares in the firm.
Back in Burden, Buffet quickly took a casual, comfortable approach with the audience. Students leapt out of their seats to stand patiently in line to ask questions and Buffett urged them closer to the stage to ensure he didn't miss a word. Buffett addressed a wide range of topics, from the riskiness of derivatives, to the war in Iraq, to offering career advice for soon-to-be graduates of HBS.
One of the first questions asked focused on his strong opinions of derivatives. Notorious for his stern warnings against such instruments, in this year's letter to shareholders, Buffett stated that derivative securities serve as "financial weapons of mass destruction." Buffett however offered a more practical assessment of the roles and risks associated with such instruments when speaking at Burden. "They are not in-themselves inherently illegal, immoral or wrong," explained Buffett.
Rather, Buffett's issue with derivatives lies with the fact that they are difficult to value, inherently risky, and often wildly overstated. Despite his concerns, Buffett acknowledges, "I have in fact made five hundred million off of derivatives in two recent transactions," but, because of their inherent risk he "...simply can't build a business out of them."
Back in Burden, Buffet quickly took a casual, comfortable approach with the audience. Students leapt out of their seats to stand patiently in line to ask questions and Buffett urged them closer to the stage to ensure he didn't miss a word. Buffett addressed a wide range of topics, from the riskiness of derivatives, to the war in Iraq, to offering career advice for soon-to-be graduates of HBS.
One of the first questions asked focused on his strong opinions of derivatives. Notorious for his stern warnings against such instruments, in this year's letter to shareholders, Buffett stated that derivative securities serve as "financial weapons of mass destruction." Buffett however offered a more practical assessment of the roles and risks associated with such instruments when speaking at Burden. "They are not in-themselves inherently illegal, immoral or wrong," explained Buffett.
Rather, Buffett's issue with derivatives lies with the fact that they are difficult to value, inherently risky, and often wildly overstated. Despite his concerns, Buffett acknowledges, "I have in fact made five hundred million off of derivatives in two recent transactions," but, because of their inherent risk he "...simply can't build a business out of them."