Today I was surprised to read that the Financial Wizard who used to say
Derivatives are financial weapons of mass destruction.
lost more than 1.6 Billion USD. Isn’t it odd that people do not practice what they preach?
May 5, 2008
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Ankur Aggarwal
sree
Sandip Chaudhuri
vbr
skabeesh
read him properly,
i think he was talking about complex derivatives in hands of people who dont know how much risk they are getting into… aka pvt banks and small corporates taking yen based derivative risk …
not the run of the mill stuff
Nyways insurance business is akin to derivatives and some are marked to mkt losses
Comment by prax — May 5, 2008 @ 12:50 pm
what surprised me was that Warren buffet publicly hates technical analysis and investing in Derivatives but his firm still has a huge exposure. and even though the article says that these losses are unbooked losses and if the index recovers Warren buffet should be able to make good of them… but still in today’s market i am skeptical of any bad news.
i agree writing options is like selling insurance business but there are a lot of things in derivatives are not for transfer of risk.. but only speculation/gambling
Comment by ankuraggarwal — May 5, 2008 @ 2:07 pm
dude aint it calculated risk
dont u take calculated risk when u invest on a technical cue?
and he has a team of experts – and they are generally given freedom
they take calculated risk -insurance / derivatives etc
Comment by Prax — May 6, 2008 @ 12:02 am
maybe you are right… anyways i thought warren buffet would be the last person investing in derivatives…. but then he is known to invest in unconventional assets
Comment by Ankur Aggarwal — May 6, 2008 @ 12:20 am
Buffet has mostly written put options on S&P with maturity dates as long as 2018 etc. He has generated a considerable amount of float from premium charged on these options. He would use this money to go long on securities which is essentially the business of Berkshire Hathway..
Generate money by writing insurance, re-insurance etc and go on buying businesses…and if we think that S&P etc will not recover till 2018 then who are we kidding..
Comment by Vaibhav Gupta — May 12, 2009 @ 12:39 pm
well i am sure Warren Buffet had his reasons and i am not qualified enough to question that.
What I am pointing out is that having a rigid stance does not work well in finance
Comment by Ankur Aggarwal — May 12, 2009 @ 2:17 pm