warren buffet and derivatives

May 5, 2008

Filed under: Thoughts — Ankur Aggarwal @ 10:28 am

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?

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