Daily Investment Tips

I was reading the latest quarterly report from Berkshire Hathaway, they just reported 40% profit decline for quarter ending June 2010.

The business remains solid but the company profits seem to be dragged down by its derivative contracts that the company signed in 2007.

The contracts are tied to equity indices. When the US stock market rises Berkshire gains but when the the stock indices slide down Berkshire looses.

In the last quarter the paper losses from this derivative contract was $1.5 billion.

In 2009 second-quarter the stock market soared & Berkshire recorded a mostly unrealized $1.5 billion gain on its derivatives in last year’s second quarter.

Warren Buffet himself correctly predicted the value of those derivatives would vary widely quarter to quarter.

How big a risk are this derivative contracts? Warren Buffet himself once referred to them as weapons of mass destruction.  Only time will tell.

For a better understanding of this derivative contract read this article Berkshire misunderstood derivatives.

written by Constantine Njeru \\ tags: Amp, Berkshire Hathaway, Company Profits, Decline, Derivative Contracts, Derivatives, Investing, Last Quarter, Paper Losses, Quarterly Report, Risk, Second Quarter, Slide Down, Stock Indices, Us Stock Market, Weapons Of Mass Destruction

Predictions of stock market directions are always interesting. I just came across a forecast from Robert Prechter, according to him, something worse than the great depression is on the horizon.

From the NYTimes

Mr. Prechter is convinced that we have entered a market decline of staggering proportions — perhaps the biggest of the last 300 years.

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said.

Robert Prechter Elliot Wave Theory

Robert Prechter extraordinary forecast is based on some mathematical formula he invented, which is based on his version of the Elliott Wave theory — a technical approach to market analysis. The article does not go into details of the formula used but my guess is Robert Prechter is the only one who understands it.

Robert Prechter Past Economic & Stock Market Predictions

Should you believe Robert Prechter market forecast? According to the article Mr. Prechter wrote “Elliott Wave Principle,” a 1978 book that predicted the emergence of a great bull market — a forecast that was largely fulfilled.

And if you had followed the investment advise he dishes out in his newsletter since 1980, you would have gotten returns lower than the overall US stock market but the on the positive side his advice would have protected your stock investment from losses – you would have lost money in only one calendar year, according to calculations by The Hulbert Financial Digest.

written by Constantine Njeru \\ tags: Calendar Year, Dow, Economic Prediction, Elliot Wave Theory, Elliott Wave Principle, Elliott Wave Theory, Emergence, Great Depression, Guese, Guess, Hulbert Financial Digest, Market Decline, Market Directions, Mathematical Formula, Nytimes, Robert Prechter, Staggering Proportions, Stock Investment, Stock Market Predictions, Technical Approach, Us Stock Market