Jan 28th, 2007 by Martin Lee
Fixed Income Securities
While Berkshire has done well with negotiated purchases of fixed income securities over the years, their purchases in the secondary market has performed better.
This corresponds with Warren Buffett’s belief that an intelligent investor in common stocks will do better in the secondary market than by buying new issues.
Why is this so?
First of all, the timing of new issues is determined by controlling stockholders and corporations. If the market is unfavorable, they can avoid an offering altogether.
The sellers in a public offering or negotiated transaction are also unlikely to offer a bargain. Most to the time, they are motivated to sell only when they can get a good price.
On the other hand, there are always times in the secondary market whereby mass folly takes place. No matter how low the price may be at that time, you can always find a few buyers who are willing to sell at that price.