2008 Financial Crisis

Buffett wrote that the financial crisis had created the rare conditions in which the prices of high-quality businesses' debt and preferred equity offered returns that would have been unthinkable a year earlier. He argued that the investor's task in a panic is to have both the capital and the temperament to act when others are forced to sell, and that the chief obstacle is rarely the absence of opportunity but the absence of liquidity and nerve when opportunity appears.

On deploying capital during the 2008 panic.

Buffett publicly acknowledged that he had made an error in buying a large position in ConocoPhillips near the top of the oil price, and that the position had been reduced at a loss. He used the admission to make the broader point that mistakes of timing on commodity-sensitive businesses are a recurring hazard, and that the discipline of staying within the circle of competence applies to industries whose economics depend on a commodity price one cannot forecast.

On the ConocoPhillips error.

Buffett described derivatives as 'financial weapons of mass destruction' in a passage written before the crisis fully unfolded, and reiterated the warning in its aftermath. He argued that derivatives' accounting, counterparty risk, and leverage were opaque even to sophisticated participants, and that Berkshire itself held only a small and well-understood derivatives book whose risks had been priced conservatively.

On the systemic risk of derivatives, restated.