Berkshire Annual Letter 1997 (Part 2)
When Warren Buffett cannot find a well-run and sensibly-priced business with good economics, he will put his money into very short term instruments. While these investments are likely to result in profits, they could also sometimes lead to losses of substantial size.
On the other hand, an investment into a wonderful business bought at an attraction price WILL always make money. It is only a matter of when.
At year end 1997, Berkshire had three non-traditional positions.
The first are derivative contracts for 14 million barrels of oil. At the time of purchase in 1994-1995, oil futures seemed underpriced.
The second are 111.2 million ounces of silver. In recent years, bullion inventories have fallen much. Warren Buffett and Charlie Munger both conclude that a higher price would be needed to meed the demand. It should be noted that inflation expectations play no part in their calculation of silver’s value.
The third are $4.6 billion worth of long-term zero coupon bonds. Because such bonds pay no interest and are sold by way of a discount to the final redemption value, their market prices will change more rapidly when interest rates change.