That defeats the purpose of an emergency fund. The reason for having it is so that he always has cash assets in hand in case something great comes along. Yes, a bird in the hand is worth two in the bush, but he’s already got a lot of birds in hand.

I think he is not being truthful about his real ideas about the housing market. You don’t have to be an analyst at the Mortgage Bankers Association to know that housing will continue to drop – 25% of homeowners are underwater, and 15% of mortgage holders are past due, the highest rate ever recorded. The new Bad Boy on the housing horizon is the default rate for prime borrowers – those with stellar credit histories. At 4%, it is the highest ever recorded.

It will take much longer than one year for housing to recover.

Only in a short-term sense.

Buffett’s entire strategy has a long-term focus. The investment purchased through use of the Opportunity Fund is going to pay a far higher long-term return than the return that would have been paid by the investment that that money would have been directed to had it not been held in the Opportunity Fund but instead invested as soon as it became available.

Opportunities don’t show up on our doorstep randomly. Buffett has explained many times that he makes most of his money when the majority of investors are losing most of theirs. He positions himself for long-term benefits by putting himself into circumstances where he is protected from the panic that is felt by those who don’t build big Opportunity Funds during surface-sunny days.

I call this insight “the Gene Mauch rule.” Mauch used to say when he was manager of the Philadelphia Phillies that the job of a manager is to make his team feel more confident when they are in a slump and less cocky when they are on a losing streak. So it is with investing. Bull Markets contain within them the seeds of huge crashes and huge crashes contain within them the seeds of huge Bull Markets. The best opportunities come during crashes and we all need to build Opportunity Funds during bull markerts if, like Buffett, we want to be able to take advantage of them.

Rob

I am really impressed with Buffet’s opportunity fund. Everyone knows about his saying that investors should “be greedy when others are fearful” but what’s oftten forgotten is that when others are fearful, without a large opportunity fund, you can’t be greedy.