Buffet - Long & Deep Recession
 

"The United States is already in a recession and it will be longer as well as deeper than many people expect" - story

Ok. Now I'm really feeling defensive. When Warren speaks I listen and heed.

So how are you heeding the Oracle of Omaha? All cash. under the matress? Gold? Oil?

I've been moving out of individual stocks into mostly more conservative mutual funds. I'm in distribution phase now so I'm willing to settle into a return that pretty much guarantees a certain level of income while preserving principal

Current holdings:
VWINX DODGX DODIX HABDX PRPFX DRTAX SMTFX SXTIX PRTAX MWTRX as well as MMF at brokers.

I feel like I should be selling more stocks and maybe putting proceeds into VPDFX after hearing from the oracle of Omaha.

Ya should be interesting. He isnt wrong too often.

Notice that in this same interview (Der Spiegel), he also says that he is looking for good companies to buy. He said "If the world were falling apart, I would still be buying good companies."

I personally am fairly heavily invested, but not in any market tracking vehicles. Where you really get hurt is in a valuation collapse of companies that never should have been valued that highly anyway.

Over time, free cash flow wins, if an LBO or such doesn't steal it out from under you.

Ha

thats true its what makes him so capable an investor - picking up the bargains - looking at Sequoia Fund also - closely associated with Buffet and has 25% invested in Berkshire. Also looking at FAIRX

Careful. You're assuming that a bad recession means stocks are a poor investment, but the valuations of many stocks have a recession priced in, IMO.

Notice that Buffett appears to be buying, not selling.

Take Lowe's and Home Depot. Their business is going to suck for at least another year or two, but they're priced for it. Ask yourself where they will be in five to ten years, not next year.

Note-- Buffett has a small position in Lowe's. So do I ;)

There is an article in the current issue (June 08 ) of SmartMoney's Unconventional Wisdom column entitled Buffett Vs. Bernanke.

Buffett vs. Bernanke (Berkshire Hathaway) at SmartMoney.com

(A subscription is required, however) In it Roger Lowenstein asks, "Why would Buffett, an investor famously adverse to speculation, risk billions of Berkshire's dollars on market calls?" ["In the 2007 annual letter ... the Omaha investor revealed he had made a fascinating series of market bets. He disclosed that Berkshire had collected premiums of $4.5 billion for what are, in effect, insurance contracts on the S&P 500 and three foreign indexes."] He answers his own question with: "judging by his bet on the S&P, he doesn't think the U.S. market is extraordinarily overpriced now (or was in the recent past)."

Oh! If only this was easy... who ya gonna believe?

I haven't changed my asset allocation in a long time. I just have been riding the ups and downs with a well balanced portfolio. Doing ok so far. :)

Which Buffet would applaud. He is a big fan of buy and hold a diversified portfolio of low cost index funds for those of us who are merely mortal :coolsmiley:

DD

Are you saying:

1. You can pick stocks better than a mutual fund manager in good times but not in bad?
2. Stock MF's preserve capital in a down market?
3. No-one can pick stocks in a bad market but if you have MF's, it's not your fault?
4. Something else?

I'd understand moving to cash or bonds but I'm not sure how MF's fit in. If MER's are an enemy when they decrease positive returns, how can they be your friend when they increase negative ones?

What's an MER...

Why doesn't the old buck take his teeth out, put them in a glass and go to bed. He talks too much.

Barron's this week has an interesting article about P/E titled "What's the real P/E Ratio" written by Chairman and President of Comstock. According to them, the current P/E is not what it appears to be.

Please follow the link below.

Barron's Online

Makes me want to go to all cash.

mP

This guy is a perma-bear. Which does not prove that he is wrong, but he sure hasn't made much money in a long while. (Other than by selling bearish sentiment.)

Ha

Barron's has been so negative for so long it is funny.

Other than a great headline just what does this statement mean? Longer than what? deeper than what? I mean I could say its going to be shorter than many believe and shallow and it could be deeper and longer than Warren's take for all I know.

Budweiser(BUD) - beer does well in recessions. I think he also bought Kraft(? for the non drinkers) - food is defensive also.

heh heh heh - ;)

Agreed. When I think of going into a deep recession, I vision dropping another 20% or more from where we are now. But I think Warren is thinking we're already there are perhaps future drops will be minor relative to our current position.

I do believe it will be a long, long time before we have a big time rally however. :( Hope I'm wrong.

Remember, cash is losing you money right now. Money markets are earning about 3%, and you pay taxes on that, so it is more like 2%.

Inflation is running at at least 4% (you can decide for yourself if the government has a secret plot to understate it ;)).

Treasury bonds don't pay enough to get a real return.

Commodity prices are through the roof and feel like they are in a bubble. I may be wrong about this, but I'm not going to get caught chasing prices up.

That pretty much leaves stocks, real estate, and junk bonds as investment options.

Stocks and real estate have the advantage of being able to increase prices and rents to cope with inflation. They seem like the only safe choices in today's environment.