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Friday, October 17, 2008

Warren Buffett Is Buying American Stocks

Bob Brinker's guest last week was Charles Ellis, author of the book "Winning the Loser's Game: Timeless Strategies for Successful Investing. Bob Brinker called Ellis a legend. Ellis said he thinks the world of Warren Buffett and has his own money invested in Buffett's Berkshire Hathaway. I too think the world of Buffett and pay attention to what he does even more than what he says.

This article from the New York Times, "Buy American. I Am, by Warren Buffett shows Buffett is moving from US Treasuries to US Stocks now.

Buffett writes he had his personal portfolio that was not in Berkshire Hathaway stock in "nothing but United States government bonds."
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
I guess Buffett missed Bob Brinker's "All in Buy Signal" at S&P500 1450.

Click chart courtesy of for full size image

Buffett writes a simple rule dictates his 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. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Buffett is also clear he can't predict the stock market, but he sure seems better than most given he has been in safe US Treasury bonds with his cash for many years leading up to today's bargain basement prices:
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
I like what Buffett says about cash.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

I agree. On Monday I moved a good chunk of my core portfolio from Vanguard Money Funds to Vanguard's TIPS fund (VIPSX Charts) after I sent a chart to my newsletter subscribers showing TIPS were paying the highest base rate in years.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”I completely agree and have been buying this downturn myself. Some things I bought were the S&P500 exchange traded spiders fund (SPY Charts) at $87.54 on 10/10/08 and my very first shares ever of Google (GOOG Charts) at $310 yesterday.
If you want to know what else I have been buying in this period of weakness with my profit taking dollars from selling when the market was higher, Subscribe to Kirk's Investment Newsletter TODAY and get the October 2008 issue FOR FREE!

Buffett was one of the Cassandras Brinker ranted at in May 2008 when he said:
What we have right in here now is evidence that the Cassandras, who earlier this year, were telling us we were in recession – right now they’ve basically – well I’ll be kind, basically, they look like fools right now. Because all that they’ve accomplished with their talk about recession…………all that they have to show for their efforts is that they scared the people who listened to them out of the stock market this past winter……….

……..And probably a lot of those people got scared out near the correction lows. The initial correction low in January, which was successfully tested in mid-March, before the market reversed and resumed its uptrend. And basically, if you were to total up all of the accomplishments of the Cassandras, that would be it – that they scared people out of the market during a stock market correction in the first quarter……….
(See Summary: Bob Brinker's Moneytalk, May 31, 2008 for more.)
Buffett warned that financial derivatives were "weapons of financial destruction" and he warned about the tech bubble that caught Brinker with his pants down with his TEFQX and QQQQ advice in 2000. Warren Buffett has gotten it right more than most others, especially Bob Brinker!

I had to laugh when I heard how quickly Brinker changed the subject when Charlie Ellis started to talk about how smart Buffett was on Brinker's show last week.

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