Sunday, September 26, 2010

Op-Ed Contributor - Warren Buffett - Buy American. I Am. - NYTimes.com


Don't let the title of this post fool you!

This editorial was actually written in October 2008, when the financial world was a very scary place (as opposed to now, when it just feels depressing).

The S&P 500 is up about +27% or so since this editorial by The Great One was published. I was reminded of it today when the New York Times had a retrospective section on past editorials.

As it turned out, Mr. Buffett's timing was a little early. The markets didn't start recovering until the spring of 2009, but Buffett has always maintained that he is not a market timer. A true investor can identify value, but no one can tell when the value will be realized.

Here's the quote that the Times reprinted today:

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.

But here's the part of Buffett's piece that, in my opinion, is still very relevant to today:

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.”

To Buffett's point: if you had stayed in cash in October 2008 you would have earned about 1% for the past 2 years.


Op-Ed Contributor - Warren Buffett - Buy American. I Am. - NYTimes.com