us dollar

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This post is a follow-up from a previous post about Going Long The Dollar. There were some valid arguments for being bullish on the dollar, however, based on yesterday’s economic news, they no longer sound very convincing.

The jobless claims came out and the national unemployment rate is now at 5.5% (and this is after the bogus birth-death model numbers that are used to under-represent the actual unemployment figures).

Oil prices shot up 8.4% to $139/barrrel, marking the highest ever one day gain for oil prices. This occurred after the U.S. dollar nosedived on speculation that the European Central Bank would raise its key lending rate and on worries that a bigger-than-expected spike in unemployment meant the U.S. economy was far weaker than feared.

I actually had taken a small position in RYBSX, but I closed it for a small loss after hearing Friday’s news.

It’s much easier to predict long term trends rather than short-term trends. In the long term, I still think the Dollar is going down, so there’s no point buying RYBSX – might as well just stick to my Australian Currency shares ETF that has done so well for me. I continue to believe that we’re going to see stagflation and have been investing accordingly. I think it commodities like gold and foreign currencies will continue to do well.

I also think it’s much easier to make money on sure things like Countrywide(CFC) and WCI Communities (WCI) going bankrupt. (Disclaimer: even though my direction for the CFC and WCI trades was correct, I was just a few weeks early and still lost money!). I’ve been harboring suspcions about Fannie Mae(FNM) and Freddie Mac(FRE) going bankrupt. Not wanting to get in to early, I’ve missed the major decline in both stocks, but there seems like theres still a bit of downward movement. Let’s see how that pans out.

The meeting started off with a humorous cartoon video of Charlie Munger running for US president. There was also a short video of Warren Buffett playing a role on tv-soap “Days of our lives” and Susan Lucci actually appeared live at the meeting.

Rather than a boring annual meeting discussing the various aspects of BRK’s business, Warren Buffett instead started fielding questions from the audience, which went on for several hours. Except for which stocks BRK was buying, no question was taboo.

Here’s some interesting points from meeting:

1. Most of what you learn about Business school is crap.

You only need 2 courses, how to value a business and how to think about stock market fluctuations. Unfortunately most professors end up teaching what they know, which consists of complex formulas and other useless stuff.

I kind of knew this, even though I am going to start B-school in the fall.

2. Develop good communication skills.

That’ll be useful in life regardless of what you do.

3. Non-professional investors should diversify their investments, both in terms of stocks and also in terms of time.

Buffett also recommended buying a low-cost index fund.

4. Be frugal, spend less than you earn, and invest a portion of your income.

5. The best investments are simple ones.

If an investment is overly complex it is usually never a good one. Buffett invested millions in PetroChina (PTR) after only reading the annual report. He realized the business was worth several times more than its current stock value and that there was sufficient margin of safety to invest.

6. Always be ethical and honest in your business deals.

All of the managers of the individual business owned by bRK are upright and ethical. As a result, Buffett doesn’t feel the need to micro-manage them and lets them do whatever they want. This fits in well with BRK’s philosophy. Whenever Buffett and Munger agree to buy a business, its set in stone. Whether there is “a nuclear explosion in New York, a flu epidemmic or Federal Chairmain Ben Bernanke runs off with Paris Hilton to South America“, the deal will go through. Yes, he actually said that.

7. Invest in yourself.

A person’s potential always greatly exceeds his realized performance. Invest in yourself and try to maximize your performance.

8. Read good books.

Two of the books Munger recommends are Yes and Influence. I strongly recommend Poor Charlie’s Almanack: The Wit and Wisdom of Charles T Munger, which is a beautiful hardcover book filled with Munger’s wit & wisdom. It also makes a great gift. One of my friends even called it one of the “all time best finance books“.

9. America is a rich country and may not need to save as much as other countries.

Maybe saving money isn’t necessary for the US, although it does look like we’re exporting ownership in US assets which is not good.

10. Financial innovation for risk diversification should be banned.

The current credit crisis and meltdown in the banking sector was caused by innovative financial products that were designed to make money for the financial institutions. Munger said that the online grocery delivery company, WebVan was a pretty asinine idea, but compared to the current bankers, those execs looked like geniuses!

11. The US Dollar is likely to weaken over the next decade.

A lot of BRK’s businesses have global sales, so a weakening dollar will result in improved profits. For example, BRK owns 200 million shares of Coke, of which 80% of its income comes from global sales.

12. We’re likely to see very high inflation over the next several years.

Inflation is bad, but BRK will profit more, than if there was no inflation.

13. Don’t buy BRK stock.

If you have time to go through the universe of stocks and pick winners, then do that instead of investing in BRK. BRK can only buy huge companies because buying a small company barely puts a dent in the annual revenue. You might be able to get better returns on your own.

Of course, there were several hours of Q & A so this is just a small tidbit. If you’d like to read the whole script you can do so at The Investment Advice of Warren Buffett.