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October 20, 2008
Buffett Never Times The Markets, Unless He Is Buying
If past history was all there was to the game, the richest people would be librarians. ~ Warren Buffett
When penning his op-ed piece for the New York Times, Warren Buffett may have been well served to remember the above. To be sure, in ‘Buy American. I am’ Mr. Buffett reminded us of how the best investors (i.e. him) have historically made enormous sums of money in U.S. stocks. However, what he neglected to do is flush out a compelling argument as to why U.S. stocks are extraordinarily cheap. During what could be an unprecedented financial crisis is knowing that investors are scared and the Dow did well over the last 100-years really enough to go headlong into equities?
“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
Commenting On Some of The Quotes
Having watched Warren Buffett hack away at Berkshire’s cash reserves with great zeal in recent months, it was surprising to read that he is only now putting his personal funds to work in stocks. The reader is left to speculate for themselves why Mr. Buffett operates Berkshire’s portfolio differently than his own:
“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.”
Does this newfound optimism contradict the optimism Buffett previously conveyed while deploying the bulk of Berkshire’s cash hoard?
“If I could get 700 billion, if I could borrow 700 billion on the government's terms and buy these assets I'd
be doing it myself. But unfortunately I'm tapped out.” Buffett. CNBC. Sept 24, 2008 PDF
Interesting. Buffett was joking about being ‘tapped out’ three-weeks ago and – after the Dow crashes by 20% - he is now suddenly excited about buying stocks.
Finally, one of the more startling statements of why Buffett now dislikes cash:
“…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.”
First positioning for the $700 billion bailout and now betting on inflation? For someone that doesn’t invest based upon speculations surrounding the macro, Buffett has seemingly been throwing a lot of money after event driven scenarios.
Closing Speculations
As a longtime Buffett follower/admirer who no longer looks forward to his next CNBC interview, it is welcomed news that Buffett will not be reprising his role as market bottom caller in the future. Yes, I am aware that Mr. Buffett continues to go to great lengths to remind readers that he has no idea what the markets will do over the short term…This coming from a man who has historically known the exact best moment when to buy.
“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...I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless...”
Incidentally, what charged this negative slant on Buffett’s op-ed is the fact that he mentioned ‘100% U.S. equities’. In recent years Buffett has offered great insights into why the U.S. dollar may be in serious long-term trouble, why derivatives poise an enormous risk to the financial markets, and – as recently as last month – why he will always keep a great deal of cash on hand (at Berkshire). Has Buffett forgotten all of these things because of the potential windfall from falling stock prices?
“If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.”
The above statement helps redefine the seriousness of Buffett. It also explicitly tells us that while he likes act coy, Buffett is indeed a ruthless timer, at least when prices are on the way down.
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