Editor’s note: This article was first published in May 2013, when Berkshire Hathaway’s Class A share traded at $162,904 and was hitting all-time highs; the share price is far higher today.
Berkshire Hathaway, Warren Buffett‘s investment vehicle, made $1.2 billion on put options (options to sell) on several of the world’s stock indices, according to Business Insider.
Buffett bet on a fall in the main financial markets in 2008, buying put options on the S&P 500, FTSE 100, Euro Stoxx 50 and Nikkei 225. Bets like this are very common among investors, although they stir up some controversy given that Warren Buffett called derivatives “financial weapons of mass destruction”.
In total, Berkshire Hathaway pocketed $1.246 billion. The options were European-style, which means they could only be exercised on the expiry date, so Warren Buffett was absolutely sure the market would fall.
As we can see, if you add a touch of speculation to Graham’s method, the returns are twice as good.
Meanwhile, Buffett’s company keeps hitting all-time highs. A Class A share of Berkshire Hathaway currently costs $162,904.
Further reading
Featured image: TEDizen, CC BY-SA 2.0, via Flickr.
