Warren Buffett Advocates Buying

[Eagle43]

One of our heroes, Warren Buffett says buy stocks, buy American stocks. Here's a quote:

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.

His example that despite the upheavals during the 20th century, the market went from 66 to 11,497 inserts reason and calmness into our doom and gloom hysteria. Of course, Warren can afford to be wrong and maybe I can't, but I like his positive message. Warren made his fortune by buying low,when stocks are "on sale" so his advice should not be disregarded. And he didn't say a word about the market being at the bottom, in fact, he said he didn't know what it would do in the short term.

Here's the link:

http://www.nytimes.com/2008/10/17/opinion/17buffett.html?th&emc=th

 

[al_bundy]

buffett has never experienced a deflationary cycle

 

[clifp]

buffett has never experienced a deflationary cycle

Really? What do you think happened to prices of virtually everything from 1930 until about 1938, we had inflation?

 

[ziggy29]

Hard to imagine deflation -- for more than a short period of time -- with all the dollars and euros that are going to be printed to shore up this mess.

 

[newporttony]

When Warren started buying a few weeks ago, somebody (I think it was a Barrons writer) made the point that you will know the market is nearing the bottom when people are dismissive of Buffett's buying. He claimed that the same thing occurred in 1987. We'll see.

 

[al_bundy]

Really? What do you think happened to prices of virtually everything from 1930 until about 1938, we had inflation?

and stock prices fell almost 90% from the 1929 high to the low in 1932 and the Dow fell 50% in 1973 - 1974

 

[clifp]

You said Warren hadn't experienced a deflationary cycle. He unlike the rest of us was alive during the Great Depression, and actually had already started a couple of business, so I think he knows of what he speaks.

 

[Running_Man]

You said Warren hadn't experienced a deflationary cycle. He unlike the rest of us was alive during the Great Depression, and actually had already started a couple of business, so I think he knows of what he speaks.

He was born in late August 1930 what business was he running by age 8? His wiki profile said his first earning was in 1945 and deducted the cost of his bicycle as a business expense

 

[ziggy29]

He was born in late August 1930 what business was he running by age 8? HIs wiki profile said his first earning was in 1945 and deducting the cost of his bicycle as a business expense

All you never knew about Warren Buffett

"His first business venture, at age six, was selling packs of chewing gum from a little green tray in his Omaha neighborhood. He earned two cents a pack. Later, he broke up cartons of Coca-Cola, which he sold door-to-door on summer nights."

 

[Dawg52]

He was born in late August 1930 what business was he running by age 8?

Probably none. So I guess we should take from these post that old Warren has just been a lucky old dog with his investments. Just doesn't have the experience or know how to be investing in this environment.

 

[clifp]

I recently finished reading Snowball Warren's 900 page Bio. (A book review will be forth coming.)

At age 6 Warren started his first business of buying packs of gums and reselling individual sticks at $.02 profit per pack,not just to kids but adults.

His really money maker was doing the same thing with cartons of Coca-Cola. Followed by door to door selling of Saturday evening post and Liberty Magazines. By age 9 he was reselling used golf balls which he hired another kid to retrieve. By the 1940 Election he was selling political buttons, and by age 10 selling peanut and popcorn at the University of Omaha football games.

He bought his first stock at age 11 which he bought with accumulated savings of $120. He also read a book called a 1000 ways to make $1,000 and vowed to make a million dollars by age 35 at age 11. (Remember this all back in 36-41 dollars). His dad was stock broker and later congressman, and young Warren hung around the broker offices.

To say he was business and math prodigy at young age would be a huge understatement, uber geek is more accurate.

 

[ziggy29]

His really money maker was doing the same thing with cartons of Coca-Cola.

Even as a wee lad he was already investing in Coke...

 

[Canadian Grunt]

He was born in late August 1930 what business was he running by age 8? His wiki profile said his first earning was in 1945 and deducted the cost of his bicycle as a business expense

Close enough...who among us is going to cast away Warren Buffet's advice?

This should be reinforcement that eventually, we will scrape our way out of this. Do as he does. Buy stocks and ETF's that pay dividends in the meantime. Each investor has to look to their investment time horizon but if you have 10 years left, buy, buy, buy....what are you waiting for? the top so the market looks safe

No guts, no glory.

 

[Marquette]

He was born in late August 1930 what business was he running by age 8? His wiki profile said his first earning was in 1945 and deducted the cost of his bicycle as a business expense

so he clearly remembers the 70's. O0

 

[CuppaJoe]

I'm buying too, that is, is small amounts, gradually.

Buffet's hype strikes me as a very ominous but well meaning attempt at restoring confidence. Didn't Jesse Livermore (?) buy in a big way as the market moved toward the 1929 crash? IIRC, it worked for a while.

 

[Gotadimple]

I think it will be a bumpy ride, like late 1987. Here's a chart I modified at MSNMoney of the S&P 500 from 10/1/87 to 1/1/88. Hopefully, we'll experience similar results. Bumpy for a bit more yet.

-- Rita

 

[Canadian Grunt]

I think it will be a bumpy ride, like late 1987. Here's a chart I modified at MSNMoney of the S&P 500 from 10/1/87 to 1/1/88. Hopefully, we'll experience similar results. Bumpy for a bit more yet.

-- Rita

I don't buy into charts. It's value or nothing for me. By any standard stocks are cheep, the key is to buy an ETF that pays out a dividend to keep the risk down and enable further purchases if this bear drags on.

 

[Gotadimple]

Grunt,
I understand why you don't buy into charts -- especially if you are referring to technical indicators.

That was not my intent with this post. I intended to refer to what the market looked like after the crash in 1987. In that crash, banks were central to the failure. I believe how well the stock market does or does not respond to the world-wide capital infusion will look similar to the chart above -- which is of the daily market advances and declines over a period of time.

Past performance is not a guarantee of future performance, but those who fail to understand history are bound to repeat it.

-- Rita

 

[Razor]

As long as the government continues to prop up the stock market it will climb. Every time the market started to flounder this decade, interest rates were slashed and billions injected into the economy. This led to the credit crisis we see now. Had the government let the market sort itself out it would have crashed in 2001 and it would be inching it's way back up today..

 

[Canadian Grunt]

Grunt,
I understand why you don't buy into charts -- especially if you are referring to technical indicators.

That was not my intent with this post. I intended to refer to what the market looked like after the crash in 1987. In that crash, banks were central to the failure. I believe how well the stock market does or does not respond to the world-wide capital infusion will look similar to the chart above -- which is of the daily market advances and declines over a period of time.

Past performance is not a guarantee of future performance, but those who fail to understand history are bound to repeat it.

-- Rita

Rita,

I prefer to look at the P/E ratios, debt levels and economic cycles to determine the worth a stock or the current market. I seek income from dividends.


We may well flat line for a while but if you won't buy now, when will you buy? The deals are here now...if the market goes lower the deals will be even better. If you don't believe this is so then you need to get out of the market. I say this only to test your belief.

I think most people on this board rationally believe the market will go up in the long term but are afraid to see red in their portfolios. This is the key to Buffet's statement "buy when people are most afraid". This is actually when your risk is the lowest…it is highest during the euphoria of a market boom, which is incidentally, when people are most comfortable.

If you believe the markets will eventually recover then you must believe that buying now will earn you profit in the future. If you have time and the strength to bear the market you will make money by buying now. By averaging down you lower the return required to break even on the recovery no matter how long it takes. And by buying dividend producing stocks you increase the rate you can buy at a lower price.

I was once part of a game in university where we new the potential outcome was going to be adverse but people continued to buy no matter what…this was the necessary outcome of the game and it was to reinforce exponential growth and reinforce the lesson of catastrophic failure regarding finite resources. Every time it plays to the same outcome even though a rational person would understand it is a no sum game….human behaviour is odd.

 

[al_bundy]

I don't buy into charts. It's value or nothing for me. By any standard stocks are cheep, the key is to buy an ETF that pays out a dividend to keep the risk down and enable further purchases if this bear drags on.

CNBC is saying that earnings are running an average of -9.1% over last year. earlier this year the estimate was for 17% growth. how exactly are stocks cheap as earnings keep coming down?

the two largest SP500 sectors of financials and commodities have been destroyed and their earnings growth is a joke going forward. tech and the other sectors better step up

 

[unclemick]

so he clearly remembers the 70's. O0

'I feel like an oversexed teenager in a Cathouse.' (Warren was less politically correct back then). When asked whether there were good stocks to buy after the 73/74 debacle.

I probably am mis quoting - but I think I'm close to the sentiment he expressed.

heh heh heh - Full auto, rebalancing their little electronic hearts out, - buy those stocks - go you little Vanguard computers go - buy, buy buy!

- sure glad they don't get emotional. . Target Retirement 2015 - SEC yield and party on into 16th year of ER.

 

[Canadian Grunt]

CNBC is saying that earnings are running an average of -9.1% over last year. earlier this year the estimate was for 17% growth. how exactly are stocks cheap as earnings keep coming down?

the two largest SP500 sectors of financials and commodities have been destroyed and their earnings growth is a joke going forward. tech and the other sectors better step up

Don't be fooled by commodities. Even though the stocks are down the earnings are still high. Stocks are down based on growth, but many commodities are in high demand. As I stated there may be a flat trend but in five years time those who don't average in now will be sorry. Regarding banks, Canadian banks are still making money as they make most of their cash from inside the country and they have a monopoly...I don't own any US stocks.

Regarding financial earnings for US banks...moving forward they will have better growth than you think because all their bad debt will be gone...they will raise the spreads on loans and increase bank charges like Canadian banks. Canadian banks will be the model and you will be surprised on the earnings growth. There will be a huge consolidation within the US banking sector on the Canadian model.

 

[Gone4Good]

and stock prices fell almost 90% from the 1929 high to the low in 1932 and the Dow fell 50% in 1973 - 1974

True, but the Dow also increased 500% in the 5 years before the 1929 crash. We've seen no such run up this time. The government also did precisely all the wrong things . . . tightened monetary policy, raised taxes, increased tariffs, etc. The government response to this crisis couldn't be more different than 1929.

As for the 1973 bear market decline of 50%, we're already off 40% from last October's peak.

 

[clifp]

I think there is a reasonable case we can see a further drop down to the S&P 800 based on S&P earnings of $70-75 and market PE in the 10-12 level.

However, Warren was no where near this bullish on stocks back in 2002, or 2003 or back in 1994-5 before the start of the bull market. Personally, I see less risk in seeing my portfolio drop another 20% than missing the 50% move we are likely to see in the next few years. I also suspect we wouldn't see a nice gradually increase but a rather a series of sharp jumps.

I believe part of the reason Warren is doing this is because a higher stock market in good for Berkshire. However, I believe the primary reason is that Warren sees a huge lack of leadership in the financial world, and while he gives the impression of hands off manager, he is actually a strong leader.