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Buy American. I Am.

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October 17, 2008 – Comments (2)

 

Those of you who haven't yet read Uncle Warren's great OP-Ed piece titled "Buy American. I Am." that was published in the New York Times yesterday definitely need to do so.  It is a very optimistic article that talks about how Buffett, who once only held U.S. Treasuries in his personal investment account, has slowly been shifting 100% of his money to U.S. equities.

Within the first couple of paragraphs Mr. Buffett reiterates his famous line "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful."  He says that while things look bleak now, most major companies that are in solid competitive positions and without a too much dept will be setting new profit records 5, 10 and 20 years from now.

According to Buffett, the time to buy stocks is when thing are at their worst and no one believes that they will ever turn around, "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.

He reinforces this point by citing the numerous times that the U.S. has found itself in similar situations in the past.  During the Great Depression, which many are comparing our current situation to (I believe that is way off the mark), the Dow hit its low on 7/8/1932.  Despite the fact that the economy continued to deteriorate until FDR took office in March of 1933, stock prices had already risen by 30% by then.  This sort of recovery has happened time and time again in the United States, during World War II, in the early 1980s, etc...

Last week, I was fortunate enough to have the opportunity to drive sports cars around a racetrack with a professional driver.  While reflecting on the experience this morning, it struck me that investing is a lot like driving a race car around a track.  Good drivers are never focusing on where their car is, but instead they are constantly looking ahead for the next turn.  Don't look at what the economy will do over the next twelve months, but look towards the future and invest money invest money that you can afford to tie up for a couple of years while great prices are available and everyone is running for the exits. 

That's what I have been trying to do lately.  I have been looking for strong companies that have absurd, solid dividend yields.  I can't remember a time in my life that solid, sustainable 5% to 10% divvy yields were so readily available, just lying on the ground ready to picked up.

Here's another great quote from the article that I couldn't agree with more:

"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."

It is a great article, make sure to check it out.

On a related note, I laugh every time I think of Buffett's recent buying spree because of something that Seth Jayson recently wrote about it:

"If the World is Ending...Then Buffett is riding the bomb toward the ground, whooping and waving his hat."

Deej

2 Comments – Post Your Own

#1) On October 17, 2008 at 12:58 PM, DemonDoug (34.03) wrote:

I need at least one more leg down to get MO and others at those fat juicy 7% dividend yields and whatnot. :)

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#2) On October 18, 2008 at 10:58 AM, HooDaHeckNose (94.54) wrote:

Unfortunately, I think 2009 will offer even lower entry points. I have picked up some PM recently ~ $40. Right now I'm girding my loins (!!) for a brief trading foray into an end of year rally (maybe) If I do buy anything in the near future, it will immediately have a limit sell order attached.

"Missed opportunities are made up more easily than losses" A lesson I have learned the hard way over the past year.

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