Warren Buffett spoke yesterday about the recent debt downgrade by Standard & Poor’s. Buffett found the downgrade by the S&P puzzling and stated that it “doesn’t make any sense”. He stated that if anything that the rating should have been raised to quadruple A. US Treasuries are still the gold standard when it comes to investment and the risk of default is virtually nonexistent.
Buffett, who is the largest shareholder in Moody’s, says that the ratings of the big three agencies(Moody’s, S&P, Fitch) do not affect his investment decisions. Buffett’s company, Berkshire Hathaway (BRK-A) is one of the largest buyers of U.S. Treasuries in the country.
That is one of the aspects that I like about Buffett. He amassed a fortune by being a contrarian investor. He is never swayed by popular opinion. He instead does his own analysis and takes an assessment of the situation. His decisions are always free of emotion. While the media and markets are temporarily panicked over the debt downgrade, Buffett takes a long term view of the situation. He believes that the deficit is not a big deal and can easily be fixed.
Warren Buffett Approach To Investing And Debt
Buffett stated that he could end the deficit in five minutes. His solution is simple and effective:
I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of Congress are ineligible for reelection.
He would tie the performance of the economy and fiscal policy to the election of politicians then you would finally see smart economic solutions. People argue along their party lines and political beliefs. I have always felt that simple spending cuts and additional tax increases can have the country’s debt under control easily.
Buffett takes the same contrarian approach to investing as well. While other corporate leaders were complaining about uncertainty and fear this weekend, Buffett was putting more capital to work. Berkshire Hathaway made a $3.25 billion dollar offer for insurance company Transatlantic Holdings (TRH). Buffett has started to aggressively buy stocks again as the last quarterly report of Berkshire Hathaway showed.