A little advice from Warren Buffett

[Headhunter]

This came accross my desk today and in these uncertain times, I thought I would share.

October 17, 2008
Op-Ed Contributor
Buy American. I Am.

By WARREN E. BUFFETT
Omaha
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.

[Eagleclaw]

I'd be buying too if i had a extra 40 billion dollars in my bank account..

[Silver Hilton]

I'm buying in. Loading up on QQQ calls and stocks recommended by the AAII Stock Superstars service.

[Headhunter]

I thought a little counterpoint could be used. Uncertain times for sure!

The following First Take is real-time analysis and opinion by the MarketWatch commentary team.

NEW YORK (MarketWatch) -- If Warren Buffett is buying stocks, should you?
The answer, unequivocally, is yes. That is, if you can get Warren's terms. And even if you can get those sweet deals, be careful.


Those are the warnings investors should heed after Buffett's now infamous commentary published in the New York Times on Friday, "Buy American. I Am." Judging by the market's response -- the Dow Jones Industrial Average (INDU) was up nearly 3% in afternoon trading -- investors are following America's most famous investor.

But those same investors should be careful. It's not that Buffett isn't smart, he is. But at this stage of the game, Warren Buffett doesn't buy stocks on the open market by calling his broker, he buys them in bulk.

For instance, he didn't just go out and buy battered shares of General Electric Co. (GE)19.89, +0.02, +0.1%) on the open market Oct. 1. He also received $3 billion in special, preferred stock. Those shares will pay a 10% dividend for at least three years and if, after that, GE wants to buy it back they will have to pay him 10%. Buffett also got warrants to buy GE stock that at the time was worth a 13% discount to existing shares.

The same principle applied with his investment in Goldman Sachs Group (GS)<IMG class=pixelTracking height=1 width=1 border=0>15.58, +3.18, +2.8% just a week earlier. Buffett again bought $5 billion in preferred stock. He'll get the same 10% dividend and $5 billion in warrants at $115.

The problem for Buffett is that his warrants were becoming worthless as GE and Goldman stock fell. One cheap, easy way for Buffett to reverse his losses is by penning an editorial using his huge sway, folksy style, and hints of patriotism to stir up some buying.

Investors should, in the end, be mindful of Buffett's advice, "Be fearful when others are greedy, and be greedy when others are fearful."

And when the "others" are investors driving very greedy sweetheart deals?
Wait until you can get your own.

David Weidner

[uhmw]

Be fearfull when others are greedy and greedy when others are fearfull.

yep-gold rush,housing boom,internet bubble,gas crisis,global warming, and politics all follow this trend. If 'in all the common folk are swaying one direction it is surly the wrong path to take. The masses tend to run like lemings.

[Lured In]

Originally Posted by Headhunter

I thought a little counterpoint could be used. Uncertain times for sure!

The following First Take is real-time analysis and opinion by the MarketWatch commentary team.

NEW YORK (MarketWatch) -- If Warren Buffett is buying stocks, should you?
The answer, unequivocally, is yes. That is, if you can get Warren's terms. And even if you can get those sweet deals, be careful.


Those are the warnings investors should heed after Buffett's now infamous commentary published in the New York Times on Friday, "Buy American. I Am." Judging by the market's response -- the Dow Jones Industrial Average (INDU) was up nearly 3% in afternoon trading -- investors are following America's most famous investor.

But those same investors should be careful. It's not that Buffett isn't smart, he is. But at this stage of the game, Warren Buffett doesn't buy stocks on the open market by calling his broker, he buys them in bulk.

For instance, he didn't just go out and buy battered shares of General Electric Co. (GE)19.89, +0.02, +0.1%) on the open market Oct. 1. He also received $3 billion in special, preferred stock. Those shares will pay a 10% dividend for at least three years and if, after that, GE wants to buy it back they will have to pay him 10%. Buffett also got warrants to buy GE stock that at the time was worth a 13% discount to existing shares.

The same principle applied with his investment in Goldman Sachs Group (GS)<IMG class=pixelTracking height=1 width=1 border=0>15.58, +3.18, +2.8% just a week earlier. Buffett again bought $5 billion in preferred stock. He'll get the same 10% dividend and $5 billion in warrants at $115.

The problem for Buffett is that his warrants were becoming worthless as GE and Goldman stock fell. One cheap, easy way for Buffett to reverse his losses is by penning an editorial using his huge sway, folksy style, and hints of patriotism to stir up some buying.

Investors should, in the end, be mindful of Buffett's advice, "Be fearful when others are greedy, and be greedy when others are fearful."

And when the "others" are investors driving very greedy sweetheart deals?
Wait until you can get your own.

David Weidner

While Buffett is more than an anomoly in terms of wealth, the above article neglects to mention that he is ponying up his own money, not Berkshire Hathaway's.

What I find more interesting is that previously he was entirely in bonds. It makes me wonder how long he has been 100% on that side of the fence.

[Headhunter]

Just to be clear, I am not advocating one way or the other. Just happend to read some stuff on both sides and thought it was interesting as it demonstrates just how cloudy the water is.

[Jimfisher]

I will buy too.

[cooky]

FYI... Buy as much Intel as you can!