The NY Times just ran an interesting Op-Ed piece from Warren Buffett. In it, he talked about his current view of the market, and how he’s been handling his personal investments:
I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds… If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
So… Why is he wading into stocks given the current market turmoil?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.
He goes on to argue that:
I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
What about holding cash for safety?
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Interesting thoughts from a guy who knows. I tend to agree with him on all accounts, though I admittedly didn’t have the foresight to move into a 100% bond position like he did. Anyway, I highly recommend clicking through and reading the full article.
Cheaplee,
True cheap doesnt always equal growth, but I do think that VALUE=GROWTH and that Buffett is not saying that we are headed back to growth but a return to norm. This is almost the invert as 1999-2000 when everyone said its different this time. Stocks are simply oversold from a historical perspective.
STOCKMANMARC
Cheap doesn’t equal growth, but apparently Buffett believes the US economy is headed for growth. Few has predicted the extent of this crash, and I believe fewer can predict how long it will take to get out of this position. The past has shown the rise after such massive selloffs to be substantially longer, especially if there are no pockets of growth.
I am socking more in stock right now. I have at least 10 years to retire early and I think what I put in now will look great in a decade.
I agree. Don’t forget that he predicted both the internet bubble and the current one:
In 1999 when everyone was busy buying internet stocks he said:
“After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities… will eventually bring on pumpkins and mice”.
At that time everyone thought he was an old fool who doesn’t understand the “new economy”. He turned out to be right – we got pumpkins and mice….
Then in 2003:
“We’ve found it hard to find significantly undervalued stocks. The shortage of attractively-priced stocks in which we can put large sums doesn’t bother us. Our capital is underutilised now, but that will happen periodically. It’s a painful condition to be in but not as painful as doing something stupid.”
Also in 2003, about mortgage-backed securities and derivatives: “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.â€
In both cases he turned out to be right. Listening to him in 1999 and 2003 would’ve saved many of us a whole lot of money.
A fascinating interview with him about the current crisis called “Wisdom of Warren Buffett: On Innovators, Imitators, and Idiots”:
http://discussionleader.hbsp.com/taylor/2008/10/wisdom_of_warren_buffet_on_imi.html
Warren Buffet is the King Solomon of our day. I think that his philosophies should be defined and broadcast to anyone that would like to listen. I am not surprised at all that he is investing so heavily in stocks. If he had the time, I’m sure he would be heavily involved in local real estate markets too.
Caleb
http://www.mefinanciallyfree.blogspot.com
I think more investors should follow in Buffet’s foot steps. Everything is at a astronomical level right now and there are a lot of great buying opportunities that present themselves. Most people think a recession is a bad thing, but if you are a true investor, you will beg to differ.