BUFFETT - American Stocks 4 The Long Term

When Mr. Buffett speaks, I listen. Warren Buffett, arguably the most $uccessful and DISCIPLINED Investor of ALL TIME, believes NOW is the time to be ACCUMULATING U.S. Stocks for the Long Term. According to Mr. Buffett's Op Ed piece in Friday's New York Times, he is not sure WHEN things will turn for the U.S. economy but he is certain that a turn will EVENTUALLY occur. As a result, he is taking advantage of the market's recent crash and purchasing American stocks for his personal non-Berkshire Hathaway account. For my future reference, I am including his entire New York Times Op Ed piece from 10/17/08 below:

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Buy American. I Am.

By WARREN E. BUFFETT

10/17/2008

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.

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* Anecdotally thinking, I of course believe Buffet's PATRIOTIC advice ('invest in AMERICA') is sound but that advice should NOT be heeded without caveats. As an individual investor, it's critical to realize that Mr. Buffett is dealing with a lot more CASH (Buffett's Berkshire Hathaway held about $40 BILLION in Cash entering 2008) than the rest of us. Because of his MASSIVE cash position, Buffett is dealing from a relative position of strength and does not need 'Mr. Market' to turn or trend up anytime soon. Therefore, while his advice is indeed sound it should not be acted/relied upon without consideration of your own personal investing time frame. If you're investing time frame is less than 3-5 years then Buffet's advice above may not hold water because market volatility in the short term could very well continue. On the contrary though, if you're bullish about stocks as a long term asset class, and if you're investing time frame is 10 years or more then Mr. Buffet's article above should confirm your instincts that NOW is an opportune time to start/continue investing.

Data Courtesy: New York Times