By Porter Stansberry in the S&A Digest:
Warren Buffett published his letter to Berkshire Hathaway shareholders this weekend. You can read it here
. And as always, Buffett dispenses plenty of investment wisdom in his usual folksy manner. One of the big lessons in this year's letter is to jump in headfirst when you see an amazing profit opportunity. Or as Buffett put it: "When it's raining gold, reach for a bucket, not a thimble."
The other big message in this year's letter is how difficult it is to be a successful lender in the United States:
And now a painful confession: Last year your chairman closed the book on a very expensive business fiasco entirely of his own making. For many years I had struggled to think of side products that we could offer our millions of loyal GEICO customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card. I reasoned that GEICO policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favor us with their business. We got business all right - but of the wrong type.
Our pre-tax losses from credit-card operations came to about $6.3 million before I finally woke up. We then sold our $98 million portfolio of troubled receivables for 55¢ on the dollar, losing an additional $44 million. GEICO's managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO's customers we would get the - well, let's call it the non-cream.
Here's what I wonder... If Warren Buffett couldn't make money lending on unsecured terms to Americans, why do investors believe highly aggressive and promotional lenders like Capital One will be able to pull it off? My advice: Bet with Buffett on this one...
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