Credit Managers Get Buffett Religion

Credit managers can learn a lot from Warren Buffett’s approach to the markets.


It’s not just equity investors flocking to worship at the feet of the Oracle of Omaha these days — credit managers are making the pilgrimage too.

Berkshire Hathaway’s annual investor meeting has long been a must-attend event for value-oriented equity managers. Some 40,000 followers flocked to the gathering at Qwest Center in Omaha, Nebraska, in early May to hear CEO Warren Buffett and Berkshire vice chairman Charlie Munger share their market outlook and answer shareholders’ questions.

This year’s meeting was particularly highly anticipated — tickets were selling on EBay for $50 apiece. (Shareholders could request up to four.) Buffett sunk $5 billion into Goldman, Sachs & Co. at the height of the financial crisis, and Berkshire investors wanted to know if he still had faith in the bank that’s been taking a beating on several fronts. Late last month the SEC announced it is suing Goldman and one of its vice presidents for allegedly misleading clients in the sale of toxic mortgage securities. The following week it emerged that federal prosecutors were mulling possible criminal charges. Amid the firestorm, Goldman and its top execs were the subject of a painful public shellacking by a U.S. Senate subcommittee channeling Main Street’s thirst for blood.

Back in Omaha, Buffett defended Goldman and at least one shareholder was not surprised. But while Jeffrey Peskind expected Buffett to stand by the investment bank, he sees a marked contrast in the way the two companies are viewed right now.

To Peskind, the founder and CEO of New York–based Phoenix Advisors, which specializes in credit, the Berkshire brand is all about integrity. “Buffett wants to treat his shareholders as he would like to be treated if he were in their shoes,” he says. Goldman may have done right by shareholders, but the SEC is alleging it did not always extend that courtesy to clients.

Credit managers can learn a lot from Buffett’s approach to the markets, says Peskind, who took 21 investors and staff to the weekend event. Fixed-income investors can too easily allow a bond’s price — rather then the true value of the underlying asset — dictate their investment decision. “Then the ratings agencies add to the situation because when bonds trade down in price, the ratings agencies downgrade the bonds. Some investors are forced to sell,” he says.

The greatest lesson he has learned from Buffett? Don’t let the markets lead your investment decisions. And the strategy appears to be working — Phoenix’s main fund was up 160 percent last year.