Buffett Steps in and Buys

Buy American. I Am.” is the headline of an Op. Ed. piece in today’s New York Times written by the Oracle of Omaha, Warren Buffett.

He writes:

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.

… snip …

A simple rule dictates my 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.

I couldn’t agree more. The valuations seen in the largest of American companies are at historical lows and missing this buying opportunity, regardless of the short-term volatility, could mean leaving a tremendous amount of wealth on the table. I wouldn’t advocate Buffett’s advice for anyone with an investing horizon under 3-5 years, but the longer term return could be very impressive and lucrative.

Investors who are holding cash as a safe position right now might have a rude awakening:

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.

Buffett’s not always right, but I agree with him 100% on this issue.

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