Warren Buffett's Love-Hate Relationship with Derivatives at Golden Networking's Derivatives Conference

Derivatives Leaders Forum 2010, "Strategies for Increasing Profits under an Evolving Regulatory Framework" (http://www.DerivativesLeadersForum.com), July 22nd, New York City.

New York, NY, July 09, 2010 --(PR.com)-- Warren Buffett, the most famous American investor of all times, expressed its disdain for derivatives even back in 2002, when he called them "financial weapons of mass destruction." Nevertheless, that never stopped conglomerate Berkshire Hathaway from using them extensively, as Mr. Buffett himself detailed in his 2009 annual letter to shareholders. The dynamics of Mr. Buffett's love-hate relationship with these instruments will be debated at Golden Networking's Derivatives Leaders Forum 2010, "Strategies for Increasing Profits under an Evolving Regulatory Framework" (http://www.DerivativesLeadersForum.com), July 22nd, 2010, New York City, sponsored by UltraHighFrequencyTrading.com.

Berkshire Hathaway annual report for 2002 included Mr. Buffett outspoken call against the use of derivatives: "I view derivatives as time bombs, both for the parties that deal in them and the economic system. Basically these instruments call for money to change hands at some future date, with the amount to be determined by one or more reference items, such as interest rates, stock prices, or currency values. For example, if you are either long or short an S&P 500 futures contract, you are a party to a very simple derivatives transaction, with your gain or loss derived from movements in the index. Derivatives contracts are of varying duration, running sometimes to 20 or more years, and their value is often tied to several variables." He lamented: "The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Fast forward to 2009 and, while saying "derivatives are dangerous", Mr. Buffett defended his use of them, devoting one-fifth of his 21-page annual letter to Berkshire shareholders to explain how he uses derivatives to make long-term bets on stock markets, corporate credit and other factors. As regulators had requested, Buffett provided far more detail on the 251 derivatives contracts that Berkshire has, which the company said in theory could require $67.29 billion (47.36 billion pounds) of payouts in the event every bet went 100 percent wrong. He also said investors should distinguish Berkshire's derivatives from others that dramatically increased financial leverage, made banks "almost impossible for investors to understand," and threatened the collapse of financial services companies such as investment bank Bear Stearns Cos and mortgage financiers Fannie Mae and Freddie Mac. "I believe each contract we own was mispriced at inception, sometimes dramatically so," he said. "I both initiated these positions and monitor them, a set of responsibilities consistent with my belief that the CEO of any large financial organization must be the chief risk officer as well. If we lose money on our derivatives, it will be my fault."

Derivatives Leaders Forum 2010 is produced by GoldenNetworking.net (http://www.goldennetworking.net), the premier networking community for business executives, entrepreneurs, investors and diplomats, founded by former McKinsey consultant and Columbia Business School MBA Edgar Perez. Upcoming Golden Networking's Forums and Business Receptions include:
- High-Frequency Trading Happy Hour, (http://www.HFTHappyHour.com), July 13th, New York City
- Distressed Investing Experts Forum 2010, "Analyzing and Valuing Distressed Companies, Securities and Real Estate" (http://www.DistressedInvestingExpertsForum.com), September 23rd, New York City
- 2nd China Leaders Forum, "Challenges and Opportunities for China's Economic Juggernaut" (http://www.ChinaLeadersForum.com), October 7th, New York City
- Latin America Leaders Forum 2010, "Unlikely Oasis of Growth amid the Global Economic Crisis?" (http://www.LatinAmericaLeadersForum.com), October 21st, New York City
- 2nd Banking Leaders Forum, "Private Banking on the Brink of Transformational Change" (http://www.BankingLeadersForum.com), November 11th, New York City
- Global Energy Leaders Forum 2010, "Proposals and Solutions for Today's Global Energy Challenges" (http://www.GlobalEnergyLeadersForum.com), December 2nd, New York City
- 2nd Private Equity Leaders Forum, "Setting the Stage for Radical Transformation in 2011 and Beyond" (http://www.PrivateEquityLeadersForum.com), December 9th, New York City

Panelists, speakers and sponsors are invited to contact Golden Networking by sending an email to info@goldennetworking.net. Golden Networking has been frequently featured in the press, including recent articles in The New York Times, "Golden Networking Helps Job Seekers Make Overseas Connections" (http://www.nytimes.com/2009/11/07/nyregion/07network.html), Los Angeles Times, "Speed-addicted traders dominate today's stock market" (http://articles.latimes.com/2010/may/16/business/la-fi-new-exchanges-20100516), Reuters, "Revamp looms as trading experts huddle at SEC" (http://www.reuters.com/article/idUSTRE6504U820100601) and Columbia Business School's Hermes Alumni Magazine, "10 Under 10" (http://www7.gsb.columbia.edu/alumni/news/ten-under-ten).

Edgar Perez