Warren Buffett Made $1.2 Billion On Financial Weapons Of Mass Destruction

[xchrom]

http://www.businessinsider.com/warren-buffett-q1-equity-index-puts-2013-5


Berkshire Hathaway's Q1 earnings are out. The company run by Warren Buffett earned $3.78 billion or $2,302 per share, up from $2.66 billion or $1,615 per share a year ago.

One detail from the Berkshire's filings we're always interested in is the value of his long-term derivative bets on the global stock markets. In case you forgot, Berkshire had sold put options on the S&P 500, FTSE 100, Euro Stoxx 50, and the Nikkei 225.

Berkshire collected premiums when it sold these options. Because they are put options, Berkshire is obligated to pay the option buyer should the indices fall below the exercise price. It's important to note that these are European style options, which means they can only be exercised at maturity. As a general rule, the value of these positions increase when stocks go up and vice versa.

This bet was controversial because in his 2002 letter to Berkshire Hathaway shareholders, Buffett dubbed derivative securities as "financial weapons of mass destruction."


Read more: http://www.businessinsider.com/warren-buffett-q1-equity-index-puts-2013-5#ixzz2SJh6Wmjc

[Squinch]

1. Puts and calls are different from CDO's and credit default swaps.

Puts and calls strike me as being legit, because they are based directly on the underlying security. They are real hedges, and legitimate financial instruments.

The newer derivatives that have little relationship to the underlying security, and strike me as just wild bets. Those, to me, belong in a casino and out of my pension fund or money market fund.

[4Q2u2]

2. Just Look at his Companies Name

Berkshire Hathaway was a good company that was his first buy-out. They made garments up here in Mass, then slowly but surely the factories were closed and all those jobs went away. Buffett made a fortune out of it though. Used that money to build the new B-H that has nothing to do with Shirts.