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US Subprime Mortgage Crisis

For the past few weeks, financial markets around the world have been rattled by the US subprime mortgage crisis triggered by the sharp fall in US housing prices. The collapse that Bear Stearns suffered might just be the tip of the iceberg. How and why has the effects spread so rapidly?

It’s actually a complex story involving subprime borrowers, Mortgage-Backed Securities (MBS), Collateralized Debt Obligations (CDOs), investment bankers, hedge funds, Credit Default Swap (CDS), Synthetic CDOs, institutional investors and even retail investors. Let’s try to look at the whole picture.

…Continue reading » US Subprime Mortgage Crisis

Berkshire Annual Letter 1997 (Part 2)

When Warren Buffett cannot find a well-run and sensibly-priced business with good economics, he will put his money into very short term instruments. While these investments are likely to result in profits, they could also sometimes lead to losses of substantial size.

On the other hand, an investment into a wonderful business bought at an attraction price WILL always make money. It is only a matter of when.

At year end 1997, Berkshire had three non-traditional positions.

…Continue reading » Unconventional Investments