Value Investing Congress Blog

Whitney Tilson and I started the Value Investing Congress three years ago to create a community of serious, committed value investors. Our experience has been that people who worship at the church of Graham, Dodd and Buffett are usually not only smart, but also generous. They like to share their ideas and learn from one another.

This blog is a natural extension of the learning and sharing that make each Value Investing Congress so useful and exhilarating. We aim to provide high quality content that will stimulate your thinking and give you new ideas to investigate.

If you’d like to submit a piece of 250-500 words to be considered for publication, send it to us at blog@ValueInvestingCongress.com .

Please check in regularly. And join us at the Value Investing Congress—the ideas and the relationships that come out of actively participating are priceless.
Warm regards,
John L. Schwartz, MD
Co-Founder
www.ValueInvestingCongress.com

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It has been a long time since we’ve had extreme fear in the U.S. equity markets, an observation supported by the historically low volatility in recent years and the low prices one could pay for disaster protection in various forms (U.S. equity index puts, credit default swap spreads, etc) prior to this summer’s credit crunch driven sell-off.

Clearly, we’ve got fear now, and at the epicenter of that fear is the U.S. real estate market. This fear is reflected in extraordinary volatility and stock price declines for those companies seen most vulnerable to the real estate bust – most notably homebuilders, mortgage lenders, and mortgage guarantors – coupled with all-time high prices for disaster protection on these names.

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Heilbrunn Center for Graham & Dodd Investing
17th  Annual Graham & Dodd Breakfast
David Einhorn’s Prepared Remarks
October 19, 2007
 

            What strikes me the most about the recent credit market crisis is how fast the world is trying to go hack to business as usual. In my view, the crisis wasn’t an accident. We didn’t get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas. Securitization is a mediocre idea. Re-securitization of already securitized assets into a CDO is a bad idea. Re-securitization of CDOs into CDO-squared is a really bad idea. So is funding a pool of long-term illiquid assets with very short-term funding in the so called asset backed commercial paper market. And as I will get to in a moment, it is a horrendous idea to delegate most of the responsibility for assessing credit risk to a group of credit rating agencies paid for by the issuers rather than the buyers of bonds.

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