A contrast in style

Two stories in today's New York times make clear the contrasting investment styles of two very different generations.

Representing the older set is 77-year old Warren Buffet, the world's second richest man, who many in the investment world continue to believe has been wrong for a decade, but who is looking more right with each passing year.

And, coming of age during the biggest credit boom in the history of the world, 37-year old money manager John Devaney, who lost big on bonds last year but is now looking to double-down in 2008.

First, a report on Mr. Devaney, in Las Vegas, at the fifth annual meeting of the American Securitization Forum, otherwise known as "The Predator's Ball".

At the conference last year, Mr. Devaney grabbed headlines — and was proved prophetic — when he said he hated subprime mortgage securities and was “hoping the whole thing explodes.” In March, before he incurred his big losses, he told The New York Times he was hoping to expand and diversify his trading business.

This year, Mr. Devaney, a brash bond trader, said he had grown cocky during the mortgage boom and paid the price. A hedge fund run by his company, United Capital Markets, plummeted last year, and he lost $100 million. The rout prompted him to sell a mansion on Key Biscayne, near Miami, his private jet and his yacht, Positive Carry, named after a financial maneuver in which the cost of financing an investment is less than the return obtained from it.

Mr. Devaney has, however, profited from turbulent markets in the past, and made his name earlier this decade trading troubled bonds backed by trailer home loans and business-franchise loans.

“In a funny way I want to thank the market for dealing me a direct hit,” Mr. Devaney said during one panel discussion, drawing laughter from the crowd. “As a trader, if you make money for too many years you lose sight of risk unless you get sucker- punched.”

Mr. Devaney said he was now buying beaten-down bonds for pennies on the dollar, betting their prices would revive.

It's nice to see that his spirit is unbowed.

Elsewhere in the Times, in this Deal Book story, Warren Buffet comments on some of the recent developments in credit markets, his characterization of derivatives as "financial weapons of mass destruction" several years ago seeming more accurate every day.

Mr. Buffett, the head of Berkshire Hathaway and one of the world’s wealthiest people, appeared to see irony in the fallout hitting many of the banks who marketed complex investments that have now crashed.

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” Mr. Buffett said during a question and answer session at a business event in Toronto.

Mr. Buffett also played down worries about a credit crunch by saying that recent interest rate cuts mean low-cost funds are readily available.

Instead, he said, the turmoil that has rocked the nation’s economy in recent months has imbued the markets with a healthy degree of caution, while the rate-cutting response from central bankers has ensured that cheap money remains available for borrowing.

“I wouldn’t quite call it a credit crunch. Funds are available,” Mr. Buffett said. “Money is available, and it’s really quite cheap because of the lowering of rates that has taken place.”

He added: “What has happened is a repricing of risk and an unavailability of what I might call ‘dumb money,’ of which there was plenty around a year ago.”

The world has changed dramatically since Mr. Buffet filed his first tax return at the age of 13 in 1943 and then went to work on Wall Street a decade later.

For someone like Mr. Devaney, it is as if the financial world prior to the "Reagan Revolution" never existed, this "revolution" really being as much about the seemingly unlimited expansion of credit and debt as anything else.