Warren Buffet: Junk Bonds of the 1980's and His Analysis on Investment Bankers

1560 Words Apr 20th, 2013 7 Pages
Discuss Buffett’s analysis of the junk bond failures of the 1980s.What is Buffett’s view of the role to be played by investment bankers? |

In regards to investing in stocks, bonds, currencies, or other investment products, it has always been a normal emotion to be happy when a stock price rose and upset when a stock price fell. Yet for Warren Buffet and his team at Berkshire they welcome these declining prices because of the opportunities it brings. According to Warren Buffet, a true investor would be buying stocks and businesses for their entire life, and “with these intentions, declining prices for businesses benefit us, and rising prices hurt us.” Understanding that the investor is going to be a buyer for eternity an investor should
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However the way these junk bonds are managed are not similar and cannot support prediction of one another. The goal of managing a Fallen Angel is to regain the investment grade status it use to sustain, while the goal of the junk bond operator is to not find a solution to fix its outstanding debt but to find “another fix.” This misleading information is what lead to the enormous sale of junk bonds, in which junk bonds that carried the low to zero value were being treated as though they would generate some type of long term return.
After analyzing the events that took place in the 1980’s and reading Warren Buffet’s view on this matter, I understand Warren Buffet’s reasoning as to why the junk bond market failed. In the 1980’s corporations used junk bonds as a tool to refinance the efficiency of their company and regain market value and credit ratings. However, not all junk bonds were treated this way and were seen as junk bonds that would never amount to anything. When making a comparison between high yield and low yield junk bonds, high yield junk bonds as a whole generated a better return mainly due to the value of those Fallen Angels that were refinancing and working to re-establish value. Those other junk bonds that were operated to find another fix were used to fool investors who were not experienced and intelligent enough to understand they were diversifying their

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