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The Buffett and Hathaway link

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by Peter Switzer

Investors and wealth builders would have to be nervous about how they play the stock market right now and for my part I’m on the perpetual lookout for reasons to be positive or negative. But you have to be careful about some indicators such as the Anne Hathaway and Warren Buffett play.

I know it sounds wacky but a number of business websites have picked up on this alleged relationship between the legendary investor and world’s third richest man, Warren Buffett, and the very popular Hollywood actress, Anne Hathaway!

The Hathaway link

No, it isn’t an intimate relationship but it certainly looks like a rewarding one.

The Huffington Post’s Dan Mirvish went right outside the square in noticing that when Hathaway’s name was big in the news, which was often when new films were released, Berkshire Hathaway A shares went up.

Mirvish showed that on the openings of Rachel Getting Married (October 3, 2008), Bride Wars (January 5, 2009), Valentine's Day (February 8, 2010), Alice in Wonderland (March 5, 2010) and Love and Other Drugs (November 24, 2010), Berkshire Hathaway A shares posted nice gains.

And even when it was announced that Hathaway would co-host the Oscars, yes, you guessed it — the shares went up again!

Of course, the link is coincidental and it was a nice way to get readers to a website linking the attractive Hathaway to the fabulously wealthy Buffett, but it reminded me of one of the best economic lessons that I have learnt.

The Post Hoc fallacy

As a student, I learnt a lot about economics and investing from the Post Hoc fallacy. In simple terms, it says if event A happens before B it doesn’t necessarily mean that A caused B.

The critical point is that sometimes A does cause B. For example, when the Reserve Bank raises interest rates rapidly in any one year and demand for houses fall and interest rate sensitive consumption nosedives, then it’s pretty safe to assume that the rate rises caused the collapse in spending.

However, there could be other forces at work such as rising house prices, petrol and power prices and there could be a whole bunch of economists warning people that three more interest rate rises are on the way.

Look at the indicators

The job of an economist and investor is to identify all of the causes and then weigh them up for importance. So, when it comes to Anne Hathaway and Berkshire Hathaway’s share price, she has no weight. Or does she?

Twenty years ago I would have said: “No weight — dumb idea.” However, in the age of search engine optimisation and computers trawling the internet for keywords, there could be a Hathaway effect that we can’t fathom or measure now but it could have some effect. I suspect it’s still negligible, but it serves to make the point that as investors we have to look at as many indicators as possible for a clue to where markets are heading.

The big weight issues remain the US recovery, Japan’s crisis, European debt, China’s growth prospects and what happens after QE2 ends in July.

There’s even the US housing crisis, which looks like it’s getting worse if you look at past sales and prices but it comes as the jobs market is improving.

The optimists

My weighing of the positives and the negatives keeps me in the optimists’ camp along with my favourite ‘Hathaway’ — the Buffett one from Omaha.

Nearly like the famous line from When Harry Met Sally: “I’ll have what he’s having.”

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, April 07, 2011

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