Warren Buffett editorial in NYT: Buy American. I Am.(nytimes.com) |
Warren Buffett editorial in NYT: Buy American. I Am.(nytimes.com) |
Excellent advice.
Buffett walks in great footsteps here. Wasn't it J.P. Getty that came out during the depression and said something like "Buy stocks. We're buying as much as we possibly can." ( I paraphrase from memory here)
I thought this quote was terrific and really relevant to HN:
"Going to work for a large company is like getting on a train. Are you going sixty miles an hour or is the train going sixty miles an hour and you're just sitting still? "
There are a bunch of great quotes: http://www.linkrap.com/Getty
(Regarding the May, 1962 Crash)
"I told them quite frankly that, while I sympathized wholeheartedly with anyone who had lost money because of market developments, I saw little if any reason for alarm and absoutely none for panic....I said I felt that the stock market was in a much healthier and certainly in a much more realistic position because of the long-needed adjustment in prices. As for what I was doing, the answer was simple. I was buying stocks...Most seasoned investors are doubtless doing much the same thing. They're snapping up the fine stock bargains available as a result of the emotionally inspired selling wave." [page 152]
Perhaps there's some difference this time around, but I doubt it. I imagine old J.P. would be saying the same thing today if he were alive.
If the banks holding bad debt were allowed to fail, this would all be sorted out much faster.
You basically have to put money in and swear not to look at it again until 2013. Because the day by day view of that investment is heart attack unfolding as the bad news isn't going away, the affects of the 700 billion dollar crisis, job losses, sub prime this, abused and reckless that, and so on is going to be on the fear radar for a bit.
You whacked the consumer with $140 oil a few months back saying hard times are ahead, and then you backed it up with current credit crisis, and then you watched wallstreet get bought by the government as everyone in their money proceeded to get to cash as fast as they could. You've told the consumer to stop spending get back to basics and thats happening.
Folks in lots of cash, aka Buffet are in hog heaven right now. He can throw a bunch of money in, go back in cryogenic freeze with Elvis and pop back out in 2013 or so and bathe himself in cristal. Day traders hanging out with cash are making by the minute deals only to cash out and get back in on the highs and lows of the game, cautiously as they are, they are doing that.
If you have funds to play, play, or throw it in there and rent out buffets cryo chamber, probably a good bet really.
And Buffett brought $5 billion worth preferred stock of GS.
Is this a rational investment?
As I recall, Buffett went heavily into precious metals and bonds over the past few years. Now he's puling that money out and going to the market. Everybody else is buying precious metals because they're scared and selling their stocks. Looks damn smart to me.
I personally have no idea what Buffett's really thinking, but maybe you left some points out of your argument there?
His billions, from where his net worth for Fortune are calculated, is the 30+% ownership of Berkshire Hathaway (market cap today, 180B). The rest is almost a rounding error -- except that's where all of his lifestyle expenses come from, beyond his $100K salary and misc. payments, as he doesn't sell (as far as I know) any of his BH and it does not yield a dividend.
"We feel noble intentions should be checked periodically against results. We test the wisdom of retaining earnings by assessing whether retention, over time, delivers shareholders at least $1 of market value for each $1 retained. To date, this test has been met. We will continue to apply it on a five-year rolling basis. As our net worth grows, it is more difficult to use retained earnings wisely." Source: Berkshire Hathaway's Owner's Manual
Mr. Buffett:: "We will either pay large dividends or none at all if we can't obtain more money through re-investment (of those funds). There is no logic to regularly paying out 10% or 20% of earnings as dividends every year."
Charles Munger: "If you went to the leading schools, they wouldn't teach dividend policy this way." Source: My notes from the 2000 Berkshire Hathaway annual meeting
http://blogmaverick.com/2008/10/15/where-to-put-your-money-r...
The only people that can play option 1 well are serious traders that have tons of time, cash, and really know what they're doing (or just have dumb luck, but applies to anything you might do with money).
The only people that can play option 2 well are serious investors that have people that work for them to analyze which are best long term buys and mange them, oh yeah, and also have lots of cash on hand; cash you don't need to use a for a long time.
So although I do try to pay attention to when people like Buffet dish out advice, I also understand that few can play at his game.
There've been times - like 1998 - when Berkshire stock was very much overvalued, and you'd be better off imitating Buffett than buying him. Hell, back then, Buffett thought Berkshire stock was overvalued, and got rid of $20B of it in buying General Re. If Berkshire is selling Berkshire stock, it's probably a good sign that you should be imitating and not buying in.
...however, I don't think now is one of those times.
That being said, the last plunge came a day after the settlement of Fannie & Freddie for roughly 90 cents on the dollar. We do not know how much of a factor this was because we do not know whether the parties selling stock were cashing out to cover CDS liabilities. We do know that the contracts covering debt held by Lehman Bros are due to be settled later this month for about 10 cents on the dollar. Someone somewhere is going to eat major losses. It will be a good sign if we get to November without another plunge.
When this debt gets settled though, someone somewhere will have to sell assets to cover their debts. Assuming everyone is properly and responsibly hedged we shouldn't have major issues. But... uh.... 800 trillion is a pretty big number, and the incentive for CDS providers was clearly to gamble: take short-term payments in exchange for bearing risk and hoping you never have to pay up.
Frankly, if I had any US assets at this point I'd convert them into Australian holdings. The exchange rate phenomenal at this point and the shift will insulate against the coming crash of the US dollar. Things are worse than people imagine.
The second route also doesn't work real well for most small investors that don't have a team to constantly analyze what are the best long term holds. My point is simply that I do listen to Buffet's advice and haven't disagreed with him. Its just that most cannot play the game in the same way he can.
Most small investors can only afford to allow large companies to manage a portfolio for them (normal 401k fund management companies). Look at the current balance sheet of these folks. They are destroyed. The fund companies didn't take care of them. Have you heard of any fund company that sent messages to their small 401k customers telling them "hey, you need to redistribute your portfolio NOW!!! Its what Buffet is doing. Then in a year or so, we'll take all that cash we switched you into and buy stocks again when the market is low". Hell no. I'm not saying the management companies are completely out of line for not taking care of the little guy. What I am saying is the little guy can't ever expect that kind of treatment. It all means that only a few get to actually partake in Buffet's wisdom.
Thank you for elaborating on the dividend comment. I certainly was not trying to imply that it was a negative. It just emphasizes that while Mr. Buffett may have as much money as anyone in the world, he does not have it in a private or liquid form outside of his role at Berkshire Hathaway. Like many growth of company-based Billionares (Gates, Bezos, etc), there is a great deal of transparency (an annual report!) in investment philosophy. Contrast with someone like Stephen Schwarzman.
The way I'm reading the "debate" here is ca98am79 saying, "Buffett has no history of investing for altruistic reasons. He invests to make money, and is the most successful person in the world at doing so." And you're saying, "Stop calling Buffett a crook! He's a value investor and a philanthropist!"
He, obviously, didn't call Buffett a crook. He said that Buffett is a successful investor that invests to make money.
It's like two totally different conversations where both are true, but they aren't talking to one another.
Everything recent has been done with cash, AFAIK.