Buffets current view

Baird

Buy American. I Am.

By WARREN E. BUFFETT
Published: October 16, 2008

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... 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. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

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. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: 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.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

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.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky's
advice: "I skate to where the puck is going to be, not to where it has been."

I don't like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I'll follow the lead of a restaurant that opened in an empty bank building and then advertised: "Put your mouth where your money was."
Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Make of that what you will.

pocketdooz

Baird wrote: »

Make of that what you will.

Baird - where do you work ?

Baird

Prefer not to say to be honest.
Why do you ask pocketdooz?

daveirl

This post has been deleted.

pocketdooz

Baird wrote: »

Prefer not to say to be honest.
Why do you ask pocketdooz?

Just wondering mate, no worries

Baird

daveirl wrote: »

This post has been deleted.

Dave do you see commodities rising in the short term?
To be honest with the amount of deleveraging going on at the moment
my own personal view is we will continue to see falls in commodity prices in
the short term due to the unwinding and deleveraging of funds and the fact
that the knock on effects of Lehmans positions being unwinded are still being
felt. Just wondering where you see the unside in mining stocks which i will
definitely agree are oversold at this point in time

daveirl

This post has been deleted.

Baird

If commodity prices are starting to behave then i would agree with your idea but they are not.
Gold should not be $780, with the amount of uncertainty in the financial system gold should be closer to $1000.
Its not and the reason its not is there is widespread dumping of commodities
due to the massive deleveraging and unwinding of the long commodities short
financials play that has been on the cards for the last year.
The impact of Lehmans has been hugely underestimated.
They were one of the biggest players in the commodity markets and the
amount of leverage they were using was shocking. It will take months if not
years for the damage of them going bust to be fully sorted out.
Until that time commodities might still be in a strange place where they are
not playing by the rules as it were.

There is an truely excellent piece in alphaville about this will see if i can dig it up.


*Edit http://ftalphaville.ft.com/blog/2008/10/17/17152/gold-prices-1-conspiracy-theorists-0/

daveirl

This post has been deleted.