Warren Buffett on the Fiscal Cliff

Warren Buffett was on Charlie Rose yesterday. Asked about how the upcoming fiscal cliff could impact the economy and his approach to investments, here's what he said:

I don't think it will do that much because I think people will assume that a solution will be found quite promptly. It's a little like the debt ceiling [last summer] ... the rest of the world may think we're idiotic at times, but they don't think we're going to commit suicide. I hope something gets worked out before January 1st, but if it goes a little bit beyond that ... I will not be selling stocks.

If you guaranteed me that the fiscal cliff, that we go past that, I wouldn't sell a share of stock.

Keep calm and carry on.

What's interesting is the last line, about permanently going over the fiscal cliff. There's near-universal agreement that that would push the economy back into recession, with a corresponding plunge in stock prices. Even if you guaranteed Buffett that outcome, he wouldn't sell a single share of stock.

That, folks, is why he's so much more successful than most investors.

Remember the fall of 2008? As swarms of investors were busy liquidating their portfolios at multi-year lows, Buffett wrote an op-ed in the New York Times titled "Buy American. I am." Berkshire Hathaway (NYSE: BRK-B  ) invested billions into companies like Goldman Sachs (NYSE: GS  ) and General Electric (NYSE: GE  ) at incredible terms. Since the day he published his "Buy American" article, the S&P 500 (INDEX: ^GSPC  ) has returned 58%.

Many investors respond to recessions with strategic selling. Buffett looks at them as gifts and responds with strategic buying. Something to keep in mind as we approach the fiscal cliff. 


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 27, 2012, at 11:55 AM, register1 wrote:

    Did one read the Bloomberg article 11-29-2011 by Richard Teitelbaum " How Secretary Paulson Gave Hedge Fund Managers (and Congess) advance word on Fannie and Freddie Rescue ( June,July 2008) . Hey fund managers, all senators , congressmen and even John Paulson and Buffett had inside info and knew (other than Buffett did not sell) to sell securities and short the market. Any of those headed to prison???? Think not. Did you have that inside info?/ Think not. Today HFTs can semi-controll the market.

  • Report this Comment On November 27, 2012, at 12:09 PM, register1 wrote:

    If Buffett is so willing to pay Federal Taxes why does he not just let his Corporations that have been assessed Federal Taxes just pay the taxes. Why is Buffett leaving the bulk of his Estate to his and Bill Gates PRIVATE FOUNDATIONS?? would it be to legally circumvent and avoid paying Federal Estate TAXES??? Why not send the money to Federal Gov't to p away??? Does that make WB a hypocrit???

  • Report this Comment On November 27, 2012, at 4:13 PM, DukeTG wrote:

    No.

  • Report this Comment On November 27, 2012, at 5:03 PM, Darwood11 wrote:

    Here is the challenge for the normal investor. These are the "you and me" who have money to put into a 401(k) or an IRA or both, and plan on using the proceeds to retire in 20, 30 or 40 years:

    Ignore the noise. Ignore the short term "hype" and begin to think long term and globally. Globally as in "I'm investing for the long term and with companies who are doing business all over the planet and with the most important economies on the planet."

    Forget about the "fiscal cliff" and Greece. In other words, ignore the chaff and keep your eyes on the prize.

  • Report this Comment On November 28, 2012, at 1:38 PM, ClimbinFool wrote:

    Morgan,

    This morning I heard Buffett on the Marketplace Morning Report, and he said we'd have a "happy household" if the Government took in 18.5% GDP in revenues and spent around 21% GDP. To me that sounds like a 2.5% GDP deficit each year, which is way better than what we have now but still doesn't sound sustainable in the long term. What am I missing?

  • Report this Comment On November 29, 2012, at 7:46 PM, Lazarill0 wrote:

    Regarding drfrank1 & the 2.5% GDP gap:

    The reason this difference is sustainable is because the US economy has, throughout its history, increased both in terms of inflation-adjusted capital (the country becomes more productive) and actual money in circulation.

    An analogy that's easier to understand: you might be willing to lend a young woman more money than she is currently able to pay back, recognizing that her income will increase over the years. At some point, she will be able to pay back that large loan.

    The significant difference between this one woman & the US is that the US isn't expected to "die" any time soon, and it keeps growing. So this trick can continually be done because a loan of, say $1 trillion is a lot more money -- in terms of the US GDP -- today than it will be in 2030. This is true both because the value of a dollar falls, and because the US becomes more productive / capable in whatever "real" terms you could define to capture our collective output.

  • Report this Comment On November 30, 2012, at 3:19 PM, ibuildthings wrote:

    Buffet is a master allocator of capital. When faced with the choice of paying taxes to the Treasury, or donating money to the Gates Foundation, he chose Gates. He is on the board there, so he can allocate that capital too. No doubt he will do a good job. But it seems hypocritical for him to talk high taxes to the Treasury on TV for you and me, but hold his own back. It is as if he doesn't trust the Democrats with his money, but does trust them with ours.

  • Report this Comment On November 30, 2012, at 6:03 PM, xetn wrote:

    Buffet says one thing and does something else. I refer you to the two following articles:

    http://www.economicpolicyjournal.com/2012/11/warren-buffett-...

    http://www.economicpolicyjournal.com/2012/11/harvard-prof-sm...

  • Report this Comment On December 01, 2012, at 11:21 PM, lowmaple wrote:

    Unless goverment institutes loophole free taxes for all noone is going to sacrafice themselves. How many of you would pay more than they have to?

  • Report this Comment On December 03, 2012, at 10:27 AM, StopPrintinMoney wrote:

    Buffett has become a political prostitute in exchange for Wells Fargo bailout. He laid down the bailout proposal in exchange for becoming Obama's Muppet. If you don't see it, shame on you.

  • Report this Comment On December 03, 2012, at 10:35 AM, MfromG wrote:

    Buffett is always flush with cash and can "buy down" much easier when the market tanks than the rest of the unwashed masses.

  • Report this Comment On December 04, 2012, at 6:00 PM, veritasvincit wrote:

    What percentage of wage-earners actually pay federal income tax? Of those who do, what percentage of their gross earnings do they -actually-pay- .

    I'm not talking about marginal tax rates, I'm asking about the actual percentage after all household deductions, refunds, etc.

    I'd venture to guess there are far fewer federal income tax payers than is commonly thought.

    As lowmaple says, you'd all do the same thing if you could. I doubt any Fool decides to ignore a legal deduction on his/her federal income tax return.

    Buffett isn't a prostitute or a muppet. He doesn't need to be. If anything, his handling of the Salomon situation makes me believe he's among the most responsible business leaders in memory. Cynicism is easy and free. Do the reading about Buffett and you'll probably see that there are few negative things you can say about him, such as that he wasn't much of a family man.

    He's been mighty generous with his money, but most of all with his wisdom, which often has little to do with investing, and more to do with loving what you do.

  • Report this Comment On December 04, 2012, at 6:11 PM, DaiEvans1955 wrote:

    Some folks around here are getting blinded by their political opinions. We're here to discuss investing, and as investors go, Mr Buffet sure beats all the whiners here.

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