Is Buffett Insane?

In the midst of economic chaos, Warren Buffett recently made a bold prediction. He said that now is the time to buy American stocks.

Of course, this call seems utterly insane. Banks are failing, the credit markets are deadlocked, unemployment is skyrocketing, and there's likely to be terrible news for months.

On the other hand, this is Warren Buffett, and he's made these sorts of predictions before.

1974: Stagflation
The years 1973 and 1974 were two very bad ones for the market. OPEC had started flexing its muscles, causing oil to quadruple. This resulted in a long recession, with inflation spiking to 12.3% in 1974, while real GDP growth fell by 0.5%. America experienced stagflation -- the ugly combination of a recession and high inflation rates -- and people were terrified. The situation was even worse in the United Kingdom, where the government was bailing out banks after real estate crashed. Over those two years, the S&P 500 plunged by 42%.

It was then, on Nov. 1, 1974, at the height of the pessimism, that Buffett made his first well-publicized bullish market call. He noted that he was well aware that the world was in a mess, but that stocks were simply too cheap. "If you're only worried about corporate profits, panic or depression, these things don't bother me at these prices."

To be totally clear, Buffett made one of the most direct predictions of his entire career: "Now is the time to invest and get rich." Buffett himself was buying shares of The Washington Post (NYSE: WPO  ) and advertising agency Interpublic (NYSE: IPG  ) .

It worked out pretty well for him. The market jumped 32% in 1975, and another 19% the next year. Even today, the Dow Jones Industrial Average's 38% gain in 1975 stands up as its biggest increase since 1955.

1979: An oil crisis
That excellent performance was followed by two poor years. Once again, we were experiencing double-digit inflation and falling GDP growth. Again, we were going through an oil crisis, this one coming in the wake of the Iranian Revolution. As a result, when Buffett made his next call on Aug. 6, 1979, the Dow Jones Average was actually trading lower than it was at the end of 1975.

This time, Buffett noted that stocks were far more attractive than bonds. He believed that pension managers, who were piling into bonds yielding 9.5%, were investing using the rearview mirror. They were avoiding the equities that had recently lost them money. But Buffett recognized that the underlying businesses were actually performing well. A combination of falling stock prices and improving business fundamentals made stocks an attractive investment.

Buffett figured that stocks were probably offering long-term returns of 13% or better. He bought oil producer Hess (NYSE: HES  ) , GEICO, and General Foods, which later became part of Kraft (NYSE: KFT  ) .

This time, Buffett's timing wasn't perfect -- the S&P 500 fell a bit more over the next few months. But his long-term prediction was spot-on. During the 1980s, the S&P 500 rose 13% annually before dividends.

1999: The Internet bubble
In November 1999, during the height of the Internet bubble, Buffett made his only bearish call. At the time, the market was in a speculative fervor, with Internet stocks showing huge price increases seemingly every day. In the five years between 1995 and 1999, the S&P 500 tripled, with compound annual returns of 26%. Many considered Buffett a relic for refusing to buy into the technology boom.

Buffett, however, noted that, because of a combination of cheap initial valuations and falling interest rates, stocks had achieved unprecedented annual returns of 19% over a 17-year period. These results made investors unreasonably optimistic. New investors were expecting 10-year annual returns of 22.6%, while even experienced investors predicted 12.9%. But the huge boom was only supported by modest GDP growth, and therefore wasn't sustainable. So, Buffett expected about 4% real returns.

He continued to hold Coca-Cola (NYSE: KO  ) , Wells Fargo (NYSE: WFC  ) , and M&T Bank (NYSE: MTB  ) , though he noted in the 2004 annual report that he should have sold some of Berkshire Hathaway's overvalued holdings.

Buffett's bearish prediction proved optimistic. The market continued to rise for a few months, with the S&P 500 topping out 9% above where it was when Buffett made the call. But that was followed by a crash. Since his call, the S&P 500 has dropped by 39%, for average annual losses of about 5%, well below Buffett's estimates.

The Foolish bottom line
The common theme of all these predictions is that Buffett didn't care about short-term fears. He wasn't worried about stagflation in the 1970s, and he didn't buy into the unrealistic optimism of the late 1990s. Instead, he rationally valued stocks, and made the right long-term calls. His biggest mistake was the 4% number he threw out in 1999 -- long-term returns have been much worse than his bearish prediction.

But that prediction was too optimistic partly because stocks are so unreasonably cheap right now. And that's why Buffett's buying today.

If you're a short-term speculator, now is a bad time to gamble. But if you're truly in it for the long term, Warren Buffett has made the call. He thinks stocks are cheap. And we agree with him. Our Motley Fool Inside Value team is astounded at the bargains that we're finding right now. You can read about them by taking a 30-day free test-drive.

Fool contributor Richard Gibbons is terrified, but still thinks this is the time to invest and get rich. Kraft is an Income Investor recommendation. Coca-Cola and Berkshire Hathaway are Inside Value picks. Berkshire Hathaway is also a Stock Advisor selection and Motley Fool holding. The Fool's disclosure policy predicted a McCain victory.

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Comments from our Foolish Readers

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  • Report this Comment On November 28, 2008, at 10:42 PM, sarcastro999 wrote:

    Wow- yet another Buffett-fawning article from Motley Fool. Has he returned your calls yet? Taken you out to lunch (for a small fee of 2 million)? Given you some "insider" tips (which, if so, probably aren't very good, given his own record lately)?

    Enough sarcasm. Here are the facts, guy- Peter Schiff has been right. Jim Rogers has been right. Bill Fleckenstein has been right. The "folksy" son of a Congressman/investment banker has been wrong. DEAD wrong. Pretty soon, people are gonna jump off the Buffett bandwagon. You guys, who have been driving the darn thing for years now, have a perfect opportunity to jump off now, before you go over the cliff with it...

  • Report this Comment On November 29, 2008, at 3:24 PM, marcosc wrote:

    Yep, he's been wrong...

    And how much has Peter Schiff earned for his fund? Is it above the 20%+ increase in Berkshire's book value (to put a solid, indisputable number) over a period of ~40 years?

    Don't forget, Schiff was claiming the world would be over since 2002. So, last year everyone would probably have been laughing at you for following his advice (and losing a whole lot of money doing so).

    Yet ultimately he was right with the housing mess. Now, lesson learnt, don't be so quick to judge if someone's right or not.

    The same holds true for Buffett. He will be proven right, not next week, not next year, but over a longer time span.

  • Report this Comment On November 29, 2008, at 5:08 PM, TMFTomGardner wrote:

    I think this sort of debate comes down, in large part, to time horizon. Peter Schiff has been briiliant over the last handful of years. And he may well be right over the next couple years as well.

    In the meantime, Buffett is making a very different sort of call. As always, he's focused on owning businesses with a time horizon 5-10 years out.

    You'll see that both Schiff and Buffett may be proven right. They just have different goals.

    I think the reason there is so much positive commentary about Buffett at The Motley Fool is that we share his time horizon. It's painful to be down 50% over the past year. It's painful for Berkshire shareholders to see their stock down so much as well. But taken over the time horizon of a lifetime of investing, this sharp drop will look blip-like. . . casting eyes back on the returns of equities 25 years from now.

    I think that's how Buffett thinks, without regard for whether he'll be alive or not in 25 years. This is his focus as he runs Berkshire. . . how can I make sure it is strong long after I'm gone.

  • Report this Comment On November 29, 2008, at 6:36 PM, sarcastro999 wrote:

    Everyone's entitled to their opinion. And everyone's entitled to be wrong once in a while, or even more. What they are NOT entitled to do is cherry pick the facts when it suits them. And for some unexplained reason, this site does that with Buffett all the time- even more so than the rest of the Buffett-fawning media. When he's right short-term, everyone sings his praises. When he's wrong, we here that he is invested "for the long term", as if he's the only one. We should be so lucky to get that kind of leeway!

    Here's a quote from Buffett I have yet to see discussed on this site from MAY 3RD: ``The worst of the crisis in Wall Street is over,'' Buffett said today on Bloomberg Television. ``In terms of people with individual mortgages, there's a lot of pain left to come.''

    Well, he was half right...

  • Report this Comment On November 29, 2008, at 11:40 PM, LucienMaximilian wrote:

    Buffett is not insane. He's brilliant. He does not subscribe to instant gratification and has the ability to tune out all the market noise. He's a bit like a cruise liner, just calmly making it's way through the storm........

    His advice is very sound and basic: buy low and sell high(er).......EVENTUALLY............a concept very foreign that goes against our conditioning to live a fast pace.

  • Report this Comment On November 30, 2008, at 9:23 AM, whereaminow wrote:

    Fellow Austrian School economists, you need to take a chill pill when attacking Buffet. The Buffet / Graham style of value investing found in "The Intelligent Investor" will always be a solid way to protect your wealth. Meanwhile, Austrian School economists like Schiff will always have a better understanding of the big picture. These are two different disciples.

    As a fan of Buffet and Hayek, I would recommend that you follow either's advice and you can't go wrong. While Motley Fool does use Buffet for promotional advantages (Austrian School theories offer Fool no tangible benefit in the short term), that doesn't mean that one is right and the other has to be wrong.

    As long as you pay no attention to Keynesians and the MSM, you should be fine.

    Viva Rothbard!

  • Report this Comment On November 30, 2008, at 9:23 AM, whereaminow wrote:

    I meant to say two different "disciplines."

  • Report this Comment On November 30, 2008, at 9:36 AM, 181736065 wrote:

    Buffet has made mistakes, like every investor.

    Long term.. everything will go up. After all, unless we enter caveman days, equity prices will meander around a continually rising mean average.

    Unfortunately, due to the severe structural and psychological damage that this violent drop has generated, and the fact that its "root causes" of housing, massively "propped up" world-wide valuations, and humongous consumer debt are deep and slow to cycle... "long term" may be a little longer than even he expects!

  • Report this Comment On December 01, 2008, at 4:44 AM, Sinfest wrote:

    Keynesian economics FTW!

  • Report this Comment On December 05, 2008, at 12:49 PM, STORMSTOCKER wrote:

    This so far is "The Perfect Storm"...

    Stocks getting slammed to the bottom,

    Real Estate burning to the ground,

    Gold tarnished to an unedible green.....

    Dollars devalued to Zero.....

    Taxpayers hold onto your wallets, and 401K's.

    The Government is stepping in, so we all will become "Dependent" on It for:

    Our "Healthcare"

    Our "Pensions and Social Security"

    Our "Infrastructure"

    Our "Jobs"

    "Keep your guns and ammo dry"

  • Report this Comment On December 05, 2008, at 2:11 PM, sunnyintexas wrote:

    I saw Merle Haggard perform that song at the Willie Nelson 4th of July picnic this year. There's something about watching the legends perform...same goes for Buffett!

  • Report this Comment On December 05, 2008, at 2:23 PM, Slavtrader wrote:

    I agree with the comments about time horizons being the applicable decision-driver here. With Buffett's horizon of 5-10 years, yeah, we're all hoping the market will be back by then. But personally, my top-down view of investing can't predict out that far at the moment. To the Fools staff, I would say be very careful of pushing for investment in the markets at the moment with what we know is looming in the near term:

    1) There is a good chance unemployment will be 10% by year end 2009

    2) As a parent with two kids in college, believe me when I say housing prices will continue to fall in 2009. This generation coming up behind us has NOTHING and the job and wage outlook is horrible for them. They WILL NOT be buying your $300K+ homes any time soon, rest assured...especially on the "soft" degrees that they are achieving.

    3) As jobs contract, sales contract, and as sales contract, companies contract. We haven't seen the shoe drop on the manufacturing and services sectors like we have the real estate and financing sectors yet. That's coming. Retail's starting to feel it, automotive is crying uncle and, on a more personal note, aerospace is beginning to whimper rather LOUDLY!

    4) Commercial property is the next to tank and that happens in earnest in 2009. I personally know of individuals carrying light industrial space that have tenants who are no longer paying their rents. If credit doesn't free up, the banks won't be re-upping a lot of these short term mortgages. And if the rents don't improve, the terms on those notes will be UGLY at best and probably drive a lot of bankruptcy into that block of ownership!

    5) After that comes the credit card debt. Jobs are tough and getting tougher. If there was any hope of paying this debt down, it will evaporate quickly as people are sent home.

    A short story made long, the solution to this mess is long term and I hope Buffett's bets are right. However, the reality is a two-fold solution that focuses on job creation with high end middle class wages. What is needed from my vantage is:

    1) Intellectual Property must be protected in this country. We cannot continue to have our engineers and scientists invent new products that are then instantly shipped off shore to be produced elsewhere. If you do that, you lose high paying manufacturing jobs and you lose the experience base that creates high paying jobs in the service sector.

    2) We need to somehow develop a middle class work force that is willing to educate themselves in the skill sets that can handle the manufacturing and servicing of the high tech products. Based on what I read in the news and deal with on the streets, I don't know if that can happen. It definitely doesn't occur by bringing in a bunch of illiterate, uneducated folks from south of our border to fill these positions, I can tell you that. And I can tell you also that there is only so much room for "soft" degrees like journalism and political science in a high tech supplier market.

    This is how we grew the world's #1 demand marketplace after WWII. On the supply side, we supplied the world with the high end technology products that they could not produce for themselves and charged for those products accordingly. And in so doing, we created a real wage here in America that was second to none. After a solid 20 years of outsourcing at the upper end of the middle class and insourcing of an illiterate workforce at the low end of the middle class, the American demand marketplace has been busted, literally. Wages evaporated, savings evaporated, inheritances evaporated, and the credit line from the middle class real estate bubble burst.

    If we start now, maybe we can turn some of these US companies around in the 5 - 10 years that Buffett is banking on. As for me, I am not convinced that those who could turn things around have seen through to the root cause of this mess yet. And on that basis, I wouldn't be anxious to tell people to jump into a market whose collapse the "experts" don't seem to fully comprehend yet. Until they do, I can't believe the solutions will be properly formulated for a quick term recovery.

    ...and in the back of my mind, I still keep referring back to the article that said, by some estimates, there could be $360 trillion of these worthless financial instruments that need to be devalued to perhaps 2% - 10% of their face value. That's 3 - 5 years of the world's combined GDPs that needs to be re-valued and written off. Based on the actions of the last few months at the government levels of control, I tend to think that article is a lot closer to the mark than any of us are being misled to believe!

  • Report this Comment On December 05, 2008, at 2:30 PM, ggustav wrote:

    Slavtrader is right on the money.

    And, Schiff was "right" about this one, but he was right about it several years ago, and "more right" about it as the time drew nigh. It seems clear that the Austrians (Rothbard et al) have it dead right in terms of macro-economics. Timing is a trickier issue.

    [And no, I'm not a Schiff disciple or Euro Pacific investor, albeit he's getting me much more interested in gold these days, I must admit.]

    Peter Schiff and others called it way early because they appear to have underestimated the resourcefulness of the government to inflate and the private market to aid and abet it. Hence, back in 2002, they didn't foresee the real estate bubble with its fiendishly crafty devices to mask risk and globally diversify U.S. consumer leverage (Fannie, Freddie, MBS's [emphasis on the "BS"], exotic derivatives, credit default swaps, etc.)

    Schiff also underestimated the degree to which the global economy remains coupled to the U.S. economy, including the Euro Pacific portfolio of healthy foreign dividend-paying companies that were not directly (but turned out to be indirectly) export-dependent. It was a perfectly understandable mistake.

    I hear about the world "decoupling" from the U.S. economy. Forgeddaboudit. Won't happen. We're all married now, a global economy, for better or for worse. The world is smaller. And the information and money velocity is such that events that took months to unfold in 1932 now unfold in weeks (or days).

    At best, there will in the coming years be a "partial decoupling." How much? Probably not as much as a lot of people imagine. Again, the thigh bone's connected to the...hip bone....

    Now, Schiff is predicting that we are in for a dollar collapse starting some time next year. Every Austrian bone in my body screams that he's right. BUT. He may be wrong. The dollar may "weaken" and wallow, but it might not "collapse."

    The U.S. may wallow along, and the administration might do some of the right things (seems unlikely but it's not impossible), and while prices will probably rise, U.S. productivity might rise as well. I keep being surprised by the impact our technology developments keep having on our productivity, and I'm a techno-dweeb. And we're right on the cusp of a massive and disruptive (okay, "paradigm-changing" --ugh) bio-revolution here, in case nobody noticed.

    Morningstar is my favorite investment site. I love their analysis, their research, and even their perspective. In general, they, and Buffet, have been proved correct. I mean, even if Buffet turned $57 billion into $23 billion or whatever it was this year, he's still got the GE paper, and he's still got $23 billion. He started with empty pockets. I can't knock the guy too much. There are grandmasters at chess and there are grandmasters at investing. Buffet is clearly an investment grandmaster. And even grandmasters lose and draw a lot of games because the market is the biggest "grandmaster" of them all. A grandmaster can have a bad tournament. Like Peter Lynch so famously said, "Soon or later, the market makes everybody look like a fool." Indeed.

    Having said that, I'm more convinced than ever that there is something to be said for what I'll call "gross market timing" or "market bubble spotting." Buffet does it. That's why he stayed out of tech in the dot-com boom, with their "business plans from Mars" as BusinessWeek put it at the time.

    I'd love to see Morningstar do a more in-depth analysis and an insightful article on how Buffet "times the trends" if you will, because he clearly does, and it's more than just "be afraid when everybody's greedy and be greedy when everybody's afraid." I may be dead wrong, but it seems to me that a guy like Buffet probably sees the marketplace and the investment world in a different way than I do, just like a grandmaster sees the chessboard very differently.

    I saw this downturn coming, sort of, almost too late, and bailed out on equities this summer. But I never saw what actually arrived at our door. I was like a cat who startled and jumped out of the Lazy Boy, for no apparent compelling reason, only to see the chair fold up on itself a moment later! Whew! Got lucky on that THAT one!

    Schiff saw it coming. Clearly. So in some respects, I was just lucky, overly-cautious if you will. I've never been into market timing. But I've been whacked in the past. And I'm getting to an age where I want some risk, but I don't want to get whacked that hard again. So, I'm skittish. Call it "trend timing" or whatever, it's a kind of gross market timing. This time, it worked, and worked beautifully.

    And I can't disagree with Morningstar's general thesis that you can't time the market. You just can't. Not in anything other than major trends. So what do the trends tell us?

    They signal extreme danger. The red hurricane flags are standing straight out, whipping in an adverse wind. I agree with Stephen McClellan in his recent blog posts ( The market isn't going anywhere for months, except perhaps down, and spectacularly down at that. We're facing huge, huge problems, and there are some very ominous recent signs -- very scary, frankly -- things like debt ratios, in the banking sector. We're a long way from out of this.

    I'll go out on a limb this far. For a month or three here, we'll probably see the market rise, maybe to 9500, maybe to 10,000, and maybe higher. But it's a head-fake. If I had any equities, I'd use this coming rally, if we get it, to "sell! sell! sell!" (as Cramer would say), but in tranches, as the market rises.

    The bear rally could go on a little longer than that. The 1930 bear rally after the 1929 crash lasted until April, I believe. But if and when the market realizes that all the king's horses and all the king's men can't put Humpty Dumpty together again... look out below!

    I would not be at all surprised to see a sub-6000 DOW, and possibly all the way down to 5000 or even lower, before this mess is over.

    This is a balance sheet recession, very much like 1929, in many respects. De-leveraging and getting back to a sound footing of real and substantive savings and value-creation will be a very tough road. Right now, I agree 100% with McClellan: Protect your capital!

    But at the same time, I agree with Morningstar: Take advantage of historically low prices in high quality names that WILL get through this! And Morningstar also advises people to go slow, to research, do their homework, develop a coherent plan. All very important stuff. I'm looking at dipping my toe in high quality, dividend-paying names on these dips, but just a toe-dip. We'll see what happens after January. If we do even a partial repeat of 1932 -- and that seems imminently possible -- THEN... wow. The deals...

    Morningstar will have to expand their rating to seven or eight stars.

    Preserve your capital!

  • Report this Comment On December 05, 2008, at 2:37 PM, Presto100 wrote:

    How has his investment in GE panned out so far?

  • Report this Comment On December 05, 2008, at 2:51 PM, imwetodddid wrote:

    I never thought Jimmy Buffet was that smart.

  • Report this Comment On December 05, 2008, at 3:41 PM, MrEd1971 wrote:

    I have enjoyed reading some excellent comments from fools over the past couple of months. I have no idea how long the recession will last, but neither do I buy into the doomsday scenario, at least as regards individual businesses. In the UK we have solid, profitable FTSE companies which are currently trading at a fraction of their net cash; we have mega-caps which are trading with secure dividend yields never seen in history. These companies are not going to disappear and as real returns on cash approach zero, these yields alone should support the market. The question I am asking is ... at what point does it make sense not to sell? For many index components it doesn't make sense to sell at these levels. Keep taking the dividends and wait for the markets to stabilize.

    Looking at businesses rather than macro-economics and Buffett is probably right about prospects. Sure, there are serious problems with the UK and US economies: deflating asset bubbles has never been painless, and with both countries running massive deficits, the state may be willing but largely unable to do anything other than buy time. I believe this is the key to how long the recession will last, and in this I am much more bearish.

    If we use the 1930s as our example, I accept Kindleberger's explanation that the depression was prolonged because the dominant global power (Britain) which had previously been able to bail the world economy out of its crises was unable to act: Britain lacked the resources. At the same time US politicians lacked both leadership and experience so squandered the resources which could have shortened the depression. Today US politicians lack the resources, and Chinese politicians lack the experience to deploy the resources they have to solve global problems. In my opinion this means acknowledging that keeping the Yuan at a low level to boost output of their economy, then recycling the cash generated back into US/UK assets effectively meant they were lending us money to keep their economy producing. Without a floating Yuan they created a perfect feedback loop. Just as US and UK banks have had to write off billions in bad loans made to consumers, China will need to write off billions of dollars of US government debt it holds. It then needs to rapidly expand its own consumer sector so that Chinese consumer demand for US/UK goods can underpin a revival in our economies. I don't see that happening any time soon, though it is in China's interest. Both US and UK cannot spend their way out of this without reciprocal co-operation from those creditor nations. Meanwhile, highly skilled jobs are disappearing at a rate which is damaging the ability of both economies to recover quickly. Consumer demand is there, but the ability of the economy to serve that demand is not. Monetary policy will not help unless there is a structural change as well and that is a political rather than an economic process.

  • Report this Comment On December 05, 2008, at 3:52 PM, Kir10 wrote:

    Buffet is sucessful because he doesn't wait around for reality...he creates reality. Obviously if everyone takes his advice and starts buying, the markets will get better. Read George Sorros' "The Alchemey of Finance." He became fascinated with the idea from Quantam physics (the fact of observing an event...changes that event)......most people don't realize the significance of this...that you CAN change events. You jump in and get involved,,,you don't wait for it to happen.

  • Report this Comment On December 05, 2008, at 4:02 PM, karakoram wrote:

    By all accounts, this is a bad time for US stocks, but a great time to buy... unfortunately, it is also a bad time for my pocketbook :(

  • Report this Comment On December 05, 2008, at 4:03 PM, bobprincewright wrote:

    Peter Schiff was like many, including myself, who have argued that housing and shares here in the USA were being driven by herd mentality and a lack of regulatory oversight. I would however caution anyone considering using their investment services since my experience was terrible. Many of the shares they bought fell by 90% leaving me with considerable losses. In the end I came to the conclusion that I would have to invest by myself. Thats after falling for sales talk from Frontier Investment, Merrill Lynch and Europac (in sequence). The fact is, all survive on commissions so their advice is never unbiased.

  • Report this Comment On December 05, 2008, at 5:57 PM, Dadw5boys wrote:

    What has changed in all the ups and downs ???

    Certianly not the NAJOR PLAYERS ?

    Who owns the largest stake in most stocks listed on any exchange ?

    BCS Barclays !

  • Report this Comment On December 05, 2008, at 6:07 PM, smartcherry wrote:

    I think investing is a bit like a sail boat at sea. It's alot easier to follow the trade winds.

  • Report this Comment On December 05, 2008, at 6:22 PM, fwtexasmusic wrote:

    Warren Buffett engages in business strategies that are monopolistic and just plain greedy, taking advantage of America's financial situation to pad his pockets right now in the Mortgage Industry, Insurance Industry, and in our lives all around us.

    I used to like this man and consider him a great American, but now I look at his companies in disgust and cannot believe the things his companies are doing right now to take advantage of Americans in every walk of life.

  • Report this Comment On December 05, 2008, at 6:57 PM, wonderousdragon wrote:

    I enjoyed reading the story, and I also enjoyed slavtrader, ggustav and kir10. While I read the story I started doing some searches on who was president when things were bad in 1973 - 74 and was not amazed to see that Nixon was in office. I have a keen sense of connecting the dots, so now all I have to do is track who was in charge when things were bad and who had taken over when things got better.

    I also believe that Mr.Buffett has some insider advantages we could never have, and he also has a keen sense of connecting dots. Thanks.

  • Report this Comment On December 05, 2008, at 7:21 PM, biotechmgr wrote:

    Add to the list of people on the right side of this market is Robert Prechter. Each of his prophecies are coming to fruition, one by one. I lament that anyone will be sucked in by the bargain hunting attitude. These are not normal times. Tread carefully, trade carefully. Investing for the long haul means cash - outperforming SP500 over 10 years.

  • Report this Comment On December 05, 2008, at 9:16 PM, changedragon wrote:

    The foundation has split atwain

    And you're still trying to play the same game

    Wake up you Fools

    This is a new paradigm with new rules

    Invest your heart

    Not your greed

    You will have

    All you need

  • Report this Comment On December 06, 2008, at 12:09 AM, firstace wrote:

    Let's face it, investing in the long term historically makes sense as does "buy low, sell high" theory - even my wife understands this. But citing Buffet as a role model for what I would consider the "average investor" misses a key point and is consequently wrong! It has to do with the worth of a dollar: Buffet can invest several million on one transaction, then lose half and not be affected in the same way that I and many like me can be essentially devastated with a bad investment many, many times smaller. The intrinsic value of a dollar to him is in no way comparable to that of mine! And in that sense his actual "risk" of loss is much much less than mine.

    It would be interesting to estimate Buffet's intrinsic dollar to mine, then have him invest the percentage of money of his total net worth to the equivalent of what my dollar is valued to me and my net worth - he might be still sitting on the sidelines like I am. Am I making Foolish sense here?

  • Report this Comment On December 06, 2008, at 8:38 AM, crawlfish wrote:

    Markets go up and they go down. The stock market and bond markets have two factors that effect their return. One are the fundamentals of the economy and companies . The other is the human factor. The factors of greed, fear and ignorance. This creates market inefficiency that can be exploited for gain. Also companies can grow their long term return. That generates market gains also and is the part that fundamentals represent. Buffet is good with both but best on using the human factor. He is right fear has driven down prices below what the fundamentals say the stocks are really worth. It is a good time to buy.

  • Report this Comment On December 06, 2008, at 8:49 AM, Sallijane wrote:

    Wonderousdragon, good call on the more enjoyable (IMHO) posts. Nixon actually resigned in August 1974, if I remember correctly, and was president when the U.S.A. went off the gold standard in 1971.

    Yes, Firstace, you are making Foolish sense, which you can see when Mary Beth Maxwell (possible choice for Sec'y. of Labor) points out that the average CEO makes 262 times the annual salary of the average worker, and that he (almost always "he") makes in a day what the average worker spends in a year. If that executive is covering his/her annual basic living expenses in a day's work, she or he has an awful lot of discretionary income to invest, spend, contribute to charity, pay taxes with, etc.

    To Fwtexasmusic, I can comment more after reading Buffett's recent biography, but he is known for pointing out that his effective income tax rate is lower than his secretary's with payroll taxes included, as he pays a low rate on his capital gains and dividends. I agree with what I hear as his implication that the source of one's income (labor, capital gains, dividends/interest) shouldn't be a big factor (if a factor at all?) in tax rate: a dollar earned is a dollar available to be used regardless of source, and those earned by labor are in a weird sense possibly more valuable, because the labor can't be "reinvested"; physical hard work causes wear and tear on a body that makes it gone once spent, whereas money invested is still available to be withdrawn and invested elsewhere.

  • Report this Comment On December 06, 2008, at 9:05 AM, Purplecrush wrote:

    While I appreciate everyone sharing opinions on these message boards, consider that many of you doom-and-gloomers are the "noise" that accompany every market meltdown / recession / crisis. I'd prefer to consider the advice of history's most famous and accomplished long-term investors ahead of Peter "end of the world" Schiff.

    "The four most expensive words in the English language are 'This time it's different'." - Sir John Templeton

    "The stock market is filled with people who know the price of everything but the value of nothing." - Philip Fisher

    "The secret to making money in stocks is not to get scared out of them." - Peter Lynch

    "The intelligent investor is likely to need considerable will power to keep from following the crowd." - Ben Graham

    "Be fearful when others are greedy and be greedy when others are fearful." - Warren Buffett

    "Bull markets are born on pessimism, grown on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell." - Sir John Templeton

    "Wall Street people learn nothing and forget everything." - Ben Graham

    Buffett has earned his stripes and is worthy of admiration here and everywhere else. The Buffett bashers are just the natural contingent of people in the world who like to criticize anybody at the top: athletes, politicians, celebrities, etc.

    This opinion is of course directed at investors not traders. By the way, how many stock traders are, like Buffett, are on Forbes list of richest people? Oh yeah, that would be zero.

  • Report this Comment On December 06, 2008, at 12:02 PM, snakeflake wrote:

    WHy does it take Warren Buffet to state the obvious to get you guys to realize that now is the time to buy. Stocks are on sale. Just pick and coose wisely.

  • Report this Comment On December 06, 2008, at 12:36 PM, MayIopine wrote:

    Buffet is a long-term investor that understands market and economic cycles. While he may not be able to time ever investment perfectly, on average he wins and wins big, partly due to the fact he has a long time horizon to realize gains.

    There is no doubt we are in for hard times but it is not the end of the world. Take a look at some of WD Gann's forecasts before the stock market crash and great depression. Look familiar? The 10 to 15 years party of leveraging is over and we will have a hangover for quite some time. (By the way, I am studying Gann's teachings? any input? Seems like the guy could read the market with amazing prescience)

    What was will be again and what will be was before. Simply put, cycles and history are repeated. America, and the world has a ways to go to deleverage and as ggustav mentions in his comment. We got way out ahead of ourselves with layers of debt piled on top of layers of debt. Now, collectively we simply cannot repay. The next crashes will be commercial real estate due to defaults, students loans, credit card debt. Massive losses for a few years. The world will learn its lesson for some time but as the memory of this debacle fades into next generation, euphoria and speculation will fuel another long-term run-up in asset prices. We will feel wealthy again and think the new party will never end. This is exactly why Buffet will make money, again.

  • Report this Comment On December 06, 2008, at 1:39 PM, Muhammad4M wrote:

    Hey,Mr Buffett is a personal hero of mine,but i certainly dont think hes the most successfull investor of all time.

    Certainly he obtained leverage by having people invest hugely with him and compound at 20% or so.

    Hence hes made the most money certainly.

    But in terms of percentage returns many,many traders have outstripped him.

    Ed Seykota made 250000% from 1972 to 1987 AFTER withdrawals.Theoretically he was up several MILLION percent until he retired.(Market Wizards-Jack Schwager.)

    Even J.W.Henry whose Financials and Metals fund

    has seen huge redemptions in recent years averages 23% compunded since the 80's-his funds are all up 40-80% this year!

    Jim Simons has averaged 34% annualy since 1987 (AFTER FEES!) with a hanfull of losing months!

    Nope,many have compounded at higher rates than Buffett for long periods but without as large capital bases.

    And yes,Buffett does trade-silver,copper futures,oil futures,forex contracts,options,derivatives.

  • Report this Comment On December 06, 2008, at 1:45 PM, lep1 wrote:

    The one thing I disagreed with about Schiff and many others was the idea that foreign investments will be a safe haven during the meltdown period. However, this week(in Dec 08), for example, Australia reduced their prime interest rate 100 basis points from 5.5% to 4.5%. Other EU members also are rapidly reducing their prime rates to curb inflation. Every fiat currency with exception to the Yen is inextricably linked to the dollar, so it makes no sense to say that offshore investments are safe.

    With regard to Buffett, he can't time the sweet spot at the bottom in order to maximize profits, but can afford to buy at various time points in the downside valley. Dollar cost averaging (buying throughout a downfall) is a way to say that you can't time the very bottom.

    There is likely more correction to come in the current meltdown. You'll know when it's safe to buy stocks again after 2 weeks of consistent higher closes in the S&P500 and DJIA. Anything else implies the usual whipsaws.

    Because the Treasury can make money out of thin air, there is a possibility that the markets turn around rapidly. However, with so many jobless, and the *huge* jump in jobs lost in Sept, Oct, November (i.e. 150k, 220k, 540k!!!!), there will be a domino effect. Hold on for the ride of your life, and get some CASH.

  • Report this Comment On December 06, 2008, at 3:14 PM, bbeerme wrote:

    I can't believe the three dozen or so previous fools have completely missed much of the point to Buffett's investing strategy, something that we common fools can't do. He likes dividends.

    For example, when he bought J&J and GE sometime earlier in 2008, he got preferred shares. Those preferred shares are earning a 10% yield for Buffett. If they are reinvested and purchase more stock, as is his usual practice, he is buying new shares at a discount. When the shares eventually do go back up, the value will increase at an exponential rate.

    Since I can't do what he does, and I'm not wealthy enough to buy and hold through this economy, I simply buy and sell bear market ETF's. And making a nice living doing it!

    Fool on you fools!

  • Report this Comment On December 06, 2008, at 5:56 PM, 44humble wrote:

    It would be wise for Motley Fool to invest in it's members expressing comments, as I find myself looking forward to the comments expressed than the articles. The are well written, very enjoyable and educational. The articles on the other hand seem to be transparent with little substance. Regardless, I appreciate the opportunity to read and analyze so many points of view.

  • Report this Comment On December 06, 2008, at 6:19 PM, johnloiu wrote:

    I think we have entered a stage in our markets where we need a new bubble to recover from the damage of a previous bubble or bubbles. What is the next Bubble? Treasuries? Gold? etc.....

  • Report this Comment On December 06, 2008, at 7:20 PM, ShortTermMan wrote:

    Forget the long term! Between Nov 19th and Nov 28th GM went up 100%. There are all kinds of quick killings to be made right now.

  • Report this Comment On December 06, 2008, at 8:43 PM, clevethedog wrote:

    Even without Buffett saying so, common sense would dictate now is the time to buy. But common sense has been absent in the financial markets for a while.

    Interestingly, my dad just sent me a copy of "The Tao of Warren Buffett." So far, it's been a decent read (all common sense stuff that CEOs and money managers have been lacking).

  • Report this Comment On December 07, 2008, at 12:16 PM, putster53 wrote:

    Former Prez 'Tricky Dick' NIxon took us off the Gold Standard in December of 1971. It then became legal for us to own gold starting in 1972. Since that time, inflation has 'run amuck', and none of the following administrations have seen fit to re-establish it (why, I haven't a clue). Our paper-based economy WILL fail-- it is inevidable (history has proved it). The market WILL crash, sometime in the coming months, or even weeks. Ever read the book 'The Day the Dollar Died'? That day is coming soon, and soon we will be spending Ameros.

    Now, about unemployment, The current numbers the government is giving us only reflect NEW unemployment claims. These numbers do NOT include people who have exhausted their benefits, or the self-employed (like myself). The numbers I saw on TV over the weekend say that employment is at only 7.9 per cent. If you put a 1 in front of that (17.9%) it would be a LOT closer.

    I have no doubt that stocks are cheap right now, but I would be VERY careful about what you buy. My money is on GLD for now------

  • Report this Comment On December 07, 2008, at 12:31 PM, gbroyal wrote:

    Reading the posted comments I find them to be most interesting.

    You seem to flaunt Buffet as the infallible guru of the investor tribe and follow his strategy blindly,not withstanding the fact that he has made mistakes of such a nature that can be ignored easily if you are left with 23 Billion. Alas, I do not have the same luxury and so took a more realistic view of the pending situation, the signs were clear so I also leapt out of the market last summer with the value of my Portfolio still relatively intact. The direction South was there to be recognised easily as I tend to navigate from the front looking forward rather than backwards, and from this perspective I do not see much calm water ahead for some time to come. When I do, I intend to re-enter the market with selected stocks that have been picked by MF.from my previous Portfolio.

    I guess this way I should be up around 25% before the Buffet adherants break even on the same Stock. This may seem to be rather optimistic, but no more so than Buffet I would say.

  • Report this Comment On December 07, 2008, at 1:37 PM, aefitz wrote:

    Just want to say thanks to each of you who took the time to write such engaging, intelligent, respectful comments. Particularly Kir10, whose perspective is interesting. I wish only that s/he had further thoughts for those who haven't had the benefit of decades of spiritual practice.

    Anyway, in a world of blogospheres filled with illiterate invective, this board (and this thread) are a relief.

  • Report this Comment On December 07, 2008, at 4:34 PM, wwcnut wrote:

    When you study the great investors you find that there are many different styles of investing. Find the style(s) that you are comfortable with and stick to it. If you don't believe in it you will fail. This isn't a science or some kid from MIT would own the entire world. People and bureaucracies are involved so this is not a well behaved environment. You have to have confidence in your personal style to "win" long term. It isn't important or necessary to put others personal styles down unless of course you need to bolster your own confidence by putting others down ;~}.

  • Report this Comment On December 08, 2008, at 6:37 PM, FOOLBEFREE wrote:

    A simple solution:

    Buy shares of BRK-B on market dips from now until July 2009 and wait 10 years.

    I bet $100 to every one of you that you will make money in 10 years. You will triple your money at a minimum.

    I read "The Making of an American Capitalist" , about how he invests. Remember his style has worked over many decades, and he is the richest man on earth from buying stocks.

  • Report this Comment On December 13, 2008, at 11:46 PM, natanel wrote:

    In my humble opinion WEB is different from most of you in that he is very disciplined and even more important he is patient. Very patient. Investors like instant gratification and abhor losing money. As far as WEB is concerned, the market can close for 5 or 10 years without effect. He just keeps on doing the math that anyone of you could or should do (providing you have an IQ greater than 100 and buys when Mr. Market is in a depressive mood. Like NOW..but it is what he buys at at what price that will determine his rate of compound return. At the end of the day we should remember what he said recently. "The DOW rose from 41 to 14000 in the last century. That's a 5.3% compounded rate of return. If the future is at all representative of the past, the DOW would be at 2 million in 92 years." So do the math and stop worrying about that which you have no control over. The trend is not your friend if your horizon is more than over the next weekend. I think personally that Graham/Buffett/Fisher/Lynch et all type of investing is but one way to get and stay rich and in my view will outlast Mr. Market.

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